The transmembrane collagenase MT1-MMP (membrane-type 1 matrix metalloproteinase), also known as MMP-14, has a critical function both in normal development and in cancer progression, and is subject to extensive controls at the post-translational level which affect proteinase activity. As zymogen activation is crucial for MT1-MMP activity, an alpha1-PI (alpha1-proteinase inhibitor)-based inhibitor was designed by incorporating the MT1-MMP propeptide cleavage sequence into the alpha1-PI reactive-site loop (designated alpha1-PI(MT1)) and this was compared with wild-type alpha1-PI (alpha1-PI(WT)) and the furin inhibitory mutant alpha1-PI(PDX). Alpha1-PI(MT1) formed an SDS-stable complex with furin and inhibited proMT1-MMP activation. A consequence of the loss of MT1-MMP activity was the activation of proMMP-2 and the inhibition of MT1-MMP-mediated collagen invasion. alpha1-PI(MT1) expression also resulted in the intracellular accumulation of a glycosylated species of proMT1-MMP that was retained in the perinuclear region, leading to significantly decreased cell-surface accumulation of proMT1-MMP. These observations suggest that both the subcellular localization and the activity of MT1-MMP are regulated in a coordinated fashion, such that proMT1-MMP is retained intracellularly until activation of its zymogen, then proMT1-MMP traffics to the cell surface in order to cleave extracellular substrates.