Activation of secreted latent matrix metalloproteinases (MMPs) is accompanied by cleavage of the N-terminal propeptide, thereby liberating the active zinc from binding to the conserved cysteine in the pro-domain. It has been assumed that an analogous mechanism is responsible for the activation of membrane type 1 MMP (MT1-MMP). Using recombinant wild-type MT1-MMP cDNA and mutant cDNAs transfected into COS-1 cells lacking endogenous MT1-MMP, we have examined the function of the propeptide domain of MT1-MMP. MT1-MMP was characterized by immunoblotting, surface biotinylation, gelatin substrate zymography, and 125I-tissue inhibitor of metalloproteinases 2 (TIMP-2) binding. In contrast to wild-type MT1-MMP-transfected COS-1 cells, transfected COS-1 cells containing a deletion of the N-terminal propeptide domain of MT1-MMP or a chimeric construction (substitution of the pro-domain of MT1-MMP with that of collagenase 3) were functionally inactive in terms of binding of 125I-labeled TIMP-2 to the cell surface and initiating the activation of pro-gelatinase A. These results support the concept that in its native plasma membrane-inserted form, the pro-domain of MT1-MMP plays an essential role in TIMP-2 binding and subsequent activation of pro-gelatinase A.