Epithelial cells maintained in culture medium containing low calcium proteolytically process laminin 5 (␣33␥2) within the ␣3 and ␥2 chains (1). Experiments were designed to identify the enzyme(s) responsible for the laminin 5 processing and the sites of proteolytic cleavage. To characterize the nature of laminin 5 processing, we determined the N-terminal amino acid sequences of the proteolytic fragments produced by the processing events. The results indicate that the first ␣3 chain cleavage (200-l65 kDa ␣3) occurs within subdomain G4 of the G domain. The second cleavage (l65-l45 kDa ␣3) occurs within the lIla domain, 11 residues Nterminal to the start of domain II. The ␥ chain is cleaved within the second epidermal growth factor-like repeat of domain Ill. The sequence cleaved within the ␥2 chain matches the consensus sequence for the cleavage of type I, II, and III procollagens by bone morphogenetic protein-1 (BMP-1), also known as type I procollagen C-proteinase (2). Recombinant BMP-1 cleaves ␥2 in vitro, both within intact laminin 5 and at the predicted site of a recombinant ␥2 short arm. ␣3 is also cleaved by BMP-1 in vitro, but the cleavage site is yet to be determined. These results show the laminin ␣3 and ␥2 chains to be substrates for BMP-1 in vitro. We speculate that ␥2 cleavage is required for formation of the laminin 5-6 complex and that this complex is directly involved in assembly of the interhemidesmosomal basement membrane. This further suggests that BMP-1 activity facilitates basement membrane assembly, but not hemidesmosome assembly, in the laminin 5-rich dermalepidermal junction basement membrane in vivo.The occurrence of physiological, extracellular proteolytic processing of collagens is well documented, as is the important role that it plays in controlling the fibrillogenesis of banded collagen fibers (3). An enzyme responsible for removal of the C-terminal procollagen propeptides of the major fibrillar collagen types I-III has been identified as BMP-1 (2).1 BMP-1 was first identified in osteogenetic fractions of mammalian bone (4 -7) but was subsequently found to show substantial homology to proteins involved in morphogenetic patterning, such as the products of Drosophila genes tolloid (tld) and tlr-1 (12, 43) and of sea urchin gene products BP10 and SpAN (8, 9). Each contains an N-terminal astacin-like zinc-binding metalloendopeptidase domain (10) followed by varying numbers of epidermal growth factor-like (EGF-like) motifs and internal repeats termed CUB domains thought to be responsible for protein-protein interactions (44).There is abundant genetic and molecular evidence that Drosophila tld mediates dorsal-ventral patterning in the fly embryo (11-13), with null phenotypes of tld showing partial transformation of the dorsal ectoderm into ventral ectoderm (14). Genetic and developmental expression studies have also indicated that the tld gene product TLD participates within the same developmental pathway as the product of the decapentaplegic gene, DPP, the fly cognate of mammalian BMP-2 an...