Although tissue inhibitor of metalloproteinase-2 (TIMP-2) is known to be not only an inhibitor of matrix metalloproteinases (MMP) but also a cofactor for membrane-type 1 MMP (MT1-MMP)-mediated MMP-2 activation, it is still unclear how TIMP-2 regulates MMP-2 activation and cleavage of substrates by MT1-MMP. In the present study we examined the levels of cell-surface MT1-MMP, MMP-2 activation and cleavage of MT1-MMP substrates in 293T cells transfected with the MT1-MMP and TIMP-2 genes. Co-expression of TIMP-2 at an appropriate level increased the level of cell-surface MT1-MMP, both the TIMP-2-bound and free forms, and generated processed MMP-2 with gelatin-degrading activity. In contrast, MT1-MMP substrates testican-1 and syndecan-1 were cleaved by the cells expressing MT1-MMP, which was inhibited by TIMP-2 even at levels that stimulate MMP-2 activation. These results suggest that TIMP-2 environment determines MT1-MMP substrate choice between direct cleavage of its own substrates and MMP-2 activation.