The bone morphogenetic protein-1 (BMP1)-like metalloproteinases play key roles in extracellular matrix formation, by converting precursors into mature functional proteins involved in forming the extracellular matrix. The BMP1-like proteinases also play roles in activating growth factors, such as BMP2/4, myostatin, growth differentiation factor 11, and transforming growth factor 1, by cleaving extracellular antagonists. The extracellular insulin-like growth factor-binding proteins (IGFBPs) are involved in regulating the effects of insulin-like growth factors (IGFs) on growth, development, and metabolism. Of the six IGFBPs, IGFBP3 has the greatest interaction with the large pool of circulating IGFs. It is also produced locally in tissues and is itself regulated by proteolytic processing. Here, we show that BMP1 cleaves human and mouse IGFBP3 at a single conserved site, resulting in markedly reduced ability of cleaved IGFBP3 to bind IGF-I or to block IGF-I-induced cell signaling. In contrast, such cleavage is shown to result in enhanced IGF-Iindependent ability of cleaved IGFBP3 to block FGF-induced proliferation and to induce Smad phosphorylation. Consistent with in vivo roles for such cleavage, it is shown that, whereas wild type mouse embryo fibroblasts (MEFs) produce cleaved IGFBP3, MEFs doubly null for the Bmp1 gene and for the Tll1 gene, which encodes the related metalloproteinase mammalian Tolloid-like 1 (mTLL1), produce only unprocessed IGFBP3, thus demonstrating endogenous BMP1-related proteinases to be responsible for IGFBP3-processing activity in MEFs. Similarly, in zebrafish embryos, overexpression of Bmp1a is shown to reverse an Igfbp3-induced phenotype, consistent with the ability of BMP1-like proteinases to cleave IGFBP3 in vivo.Bone morphogenetic protein-1 (BMP1)-like proteinases affect morphogenetic events via biosynthetic processing of precursors into mature functional proteins involved in forming the extracellular matrix. Extracellular matrix-related substrates include precursors for collagens I-III, V, VII, and XI; the crosslinking enzyme lysyl oxidase; proteoglycans biglycan and osteoglycin; and basement membrane component laminin-332 (laminin-5) (1). These proteinases are also involved in the biosynthetic processing that produces peptides involved in initiating the mineralization of bones and teeth and in processing the hormone prolactin and the proteoglycan perlecan to produce anti-angiogenic factors (1, 2). In addition, BMP1-like proteinases are involved in activating extracellular latent complexes of some transforming growth factor  (TGF) superfamily members, including BMP2, BMP4, growth and differentiation factor 8 (GDF8) (also known as myostatin), GDF11, and TGF1 (1, 3).Insulin-like growth factors, IGF-I 2 and -II, are evolutionarily conserved polypeptide growth factors with important effects on mitogenesis, development, somatic growth, and metabolism (4). In extracellular spaces and in biological fluids, IGFs are normally bound to a family of IGF-binding proteins (IGFBPs), which modu...