Bone morphogenetic protein-1 (BMP-1) is a metalloprotease that plays important roles in regulating the deposition of fibrous extracellular matrix in vertebrates, including provision of the procollagen C-proteinase activity that processes the major fibrillar collagens I-III. Biglycan, a small leucine-rich proteoglycan, is a nonfibrillar extracellular matrix component with functions that include the positive regulation of bone formation. Biglycan is synthesized as a precursor with an NH 2 -terminal propeptide that is cleaved to yield the mature form found in vertebrate tissues. Here, we show that BMP-1 cleaves probiglycan at a single site, removing the propeptide and producing a biglycan molecule with an NH 2 terminus identical to that of the mature form found in tissues. BMP-1-related proteases mammalian Tolloid and mammalian Tolloid-like 1 (mTLL-1) are shown to have low but detectable levels of probiglycancleaving activity. Comparison shows that wild type mouse embryo fibroblasts (MEFs) produce only fully processed biglycan, whereas MEFs derived from embryos homozygous null for the Bmp1 gene, which encodes both BMP-1 and mammalian Tolloid, produce predominantly unprocessed probiglycan, and MEFs homozygous null for both the Bmp1 gene and the mTLL-1 gene Tll1 produce only unprocessed probiglycan. Thus, all detectable probiglycan-processing activity in MEFs is accounted for by the products of these two genes.Bone morphogenetic protein-1 (BMP-1) 1 is the prototype of a family of metalloproteases involved in morphogenesis in a broad range of species (1). BMP-1 and mammalian Tolloid (mTLD), a somewhat larger protein encoded by alternatively spliced RNAs of the Bmp1 gene (2), affect morphogenesis, at least in part, by providing the procollagen C-proteinase (PCP) activity that cleaves the C-propeptides of procollagens I-III to yield the major fibrous components of extracellular matrix (ECM) (3-6). These two proteases also contribute to the net deposition of insoluble ECM through proteolytic activation of lysyl oxidase (7), 2 an enzyme necessary to the formation of covalent cross-links in collagen and elastic fibers. Two additional, genetically distinct, BMP-1/mTLD-related mammalian proteases have been described and designated mammalian Tolloid-like 1 (mTLL-1) and mTLL-2, due to domain structures identical to that of mTLD (5, 8). Although mTLL-1 has some PCP activity in in vitro assays (5), the significance of this activity is unclear, as procollagen processing appears unaffected in mTLL-1-deficient mice (9). PCP activity was not detected in in vitro assays of mTLL-2 (5).Recently, BMP-1/mTLD-related proteases Xenopus Xolloid (10) and zebrafish Tolloid (11) were shown to exert ventralizing effects during vertebrate embryogenesis by cleaving the secreted protein Chordin, which forms latent complexes with ventralizing TGF--like molecules, such as BMPs 2 and 4 (12). BMP-1 and mTLL-1 are also capable of affecting dorsal-ventral patterning through cleavage of Chordin, whereas mTLD and mTLL-2 do not have detectable levels of t...