Growth in utero depends on adequate development and function of the fetal/maternal interface. During pregnancy, the insulin-like growth factors (IGFs), which are known to be critically involved in placental development, are controlled by a binding protein-IGFBP-1-produced by maternal decidualized endometrium. We have previously found that decidua also produces a protease that cleaves IGFBP-1; because proteolysis of IGFBP-1 may represent a mechanism for increasing IGF bioavailability, the present study aimed to identify the protease and its regulators to understand the control of IGF activity at the maternal/fetal interface. Immunochemical methods were used to show that decidualized endometrial cells from first-trimester pregnancy produced matrix metalloprotease (MMP)-3; incubation of IGFBP-1 with either this enzyme or MMP-9, which is produced by the trophoblast, produced a series of fragments that were unable to bind IGF-I. Western immunoblot analysis and immunocytochemistry demonstrated that decidual cells also produce tissue inhibitor of metalloproteinase (TIMP)-1, TIMP-2, and alpha(2)-macroglobulin, and all three inhibitors attenuated the proteolysis of IGFBP-1 by MMPs. The N-terminal sequence analysis of the fragments revealed that the enzymes cleave IGFBP-1 at (145)Lys/Lys(146), resulting in a small (9-kDa) C-terminal peptide of IGFBP-1. These findings suggest cleavage of IGFBP-1 as a novel mechanism in the control of placental development by matrix metalloproteases.