To elucidate the physiological role of human stromelysin-3 (hST-3) in tumor progression and/or wound healing, insulin-like growth factor-binding protein-1 (IGFBP-1) was analyzed as a potential physiological substrate. hST-3 proteolysis generates two fragments of 16 and 9 kDa that react with IGFBP-1 monoclonal antibody, although they do not bind insulin-like growth factor-I (IGF-I) in ligand blot. N-terminal sequencing shows that hST-3 cleaves IGFBP-1 at the His(140)-Val(141) bond located in the IGFBP-1 midregion. We show that IGFBP-1 inhibits IGF-I-induced survival and proliferation of BAF/3 cells, as well as IGF-I-mediated activation of phosphatidylinositol 3-kinase (PI 3-K). Co-incubation of the IGF-I . IGFBP-1 complex with hST-3 restores IGF-I-induced proliferation and PI 3-K kinase activity in these cells. BAF/3 proliferation is significantly increased with the hST-3-treated IGF-I . IGFBP-1 complex compared with that obtained using IGF-I alone. To produce this enhanced proliferation, IGF-I must bind to IGFBP-1 before hST-3 proteolysis, demonstrated using an IGF-I variant that does not bind IGFBP. IGFBP-1 also inhibits IGF-I-induced proliferation of the MCF-7 breast adenocarcinoma, and this inhibition was not seen in hST-3-transfected MCF-7 cells. Such proteolysis may thus play a role in in vivo tumor progression. These results indicate that hST-3 may regulate IGF-I bioavailability by proteolyzing IGFBP, thus favoring cell survival and proliferation.