The matrix metalloproteinase (MMP)-2 has a crucial role in extracellular matrix degradation associated with cancer metastasis and angiogenesis. The latent form, pro-MMP-2, is activated on the cell surface by the membrane-tethered membrane type 1 (MT1)-MMP, in a process regulated by the tissue inhibitor of metalloproteinase (TIMP)-2. A complex of active MT1-MMP and TIMP-2 binds pro-MMP-2 forming a ternary complex, which permits pro-MMP-2 activation by a TIMP-2-free neighbouring MT1-MMP. It remains unclear how MMP-2 activity in the pericellular space is regulated in the presence of TIMP-2. To address this question, the effect of TIMP-2 on MMP-2 activity in the extracellular space was investigated in live cells, and their isolated plasma membrane fractions, engineered to control the relative levels of MT1-MMP and TIMP-2 expression. We show that both free and inhibited MMP-2 is detected in the medium, and that the net MMP-2 activity correlates with the level of TIMP-2 expression. Studies to displace MT1-MMP-bound TIMP-2 in a purified system with active MMP-2 show minimal displacement of inhibitor, under the experimental conditions, due to the high affinity interaction between TIMP-2 and MT1-MMP. Thus inhibition of MMP-2 activity in the extracellular space is unlikely to result solely as a result of TIMP-2 dissociation from its complex with MT1-MMP. Consistently, immunoblot analyses of plasma membranes, and surface biotinylation experiments show that the level of surface association of TIMP-2 is independent of MT1-MMP expression. Thus low-affinity binding of TIMP-2 to sites distinct to MT1-MMP may have a role in regulating MMP-2 activity in the extracellular space generated by the ternary complex.