Proteolytic degradation of extracellular matrix (ECM) components during tissue remodeling plays a pivotal role in normal and pathological processes including wound healing, inflammation, tumor invasion, and metastasis. Proteolytic enzymes in tumors may activate or release growth factors from the ECM or act directly on the ECM itself, thereby facilitating angiogenesis or tumor cell migration. Fibroblast activation protein (FAP) is a cell surface antigen of reactive tumor stromal fibroblasts found in epithelial cancers and in granulation tissue during wound healing. It is absent from most normal adult human tissues. FAP is conserved throughout chordate evolution, with homologues in mouse and Xenopus laevis, whose expression correlates with tissue remodeling events. Using recombinant and purified natural FAP, we show that FAP has both dipeptidyl peptidase activity and a collagenolytic activity capable of degrading gelatin and type I collagen; by sequence, FAP belongs to the serine protease family rather than the matrix metalloprotease family. Mutation of the putative catalytic serine residue of FAP to alanine abolishes both enzymatic activities. Consistent with its in vivo expression pattern determined by immunohistochemistry, FAP enzyme activity was detected by an immunocapture assay in human cancerous tissues but not in matched normal tissues. This study demonstrates that FAP is present as an active cell surface-bound collagenase in epithelial tumor stroma and opens up investigation into physiological substrates of its novel, tumor-associated dipeptidyl peptidase activity.