Human insulin is a hormone well-known to regulate the blood glucose level. Recombinant preproinsulin, a precursor of authentic insulin, is typically produced in E. coli as an inactive inclusion body, the solubilization of which needs the addition of reducing agents such as $eta$-mercaptoethanol. To make authentic insulin, recombinant preproinsulin is modified enzymatically by trypsin and carboxypeptidase B. The effects of $eta$-mercaptoethanol on the formation of human insulin derivatives were investigated in the enzymatic modification by using commercially available human proinsulin as a substrate. Addition of 1 mM $eta$-mercaptoethanol induced the formation of various insulin derivatives. Among them, the second major one, impurity 3, was found to be identical to the insulin B chain fragment from $Phe_1$ to $Glu_{21}$. Minimization of the formation of insulin derivatives and concomitant improvement of the production yield of human insulin were achieved by the addition of hydrogen peroxide. Hydrogen peroxide bound with $eta$-mercaptoethanol and thereby reduced the negative effects of $eta$-mercaptoethanol considerably. Elimination of the impurity 3 and other derivatives by the addition of over 10 mM hydrogen peroxide in the presence of $eta$-mercaptoethanolled to a 1.3-fold increase in the recovery efficiency of insulin, compared with those for the case without hydrogen peroxide. The positive effects of hydrogen peroxide were also confirmed with recombinant human preproinsulin expressed in recombinant E. coli as an inclusion body.