Macrophage stimulating protein (MSP), which is secreted as biologically inactive pro-MSP, is activated to MSP by cleavage at a single peptide bond. Our objectives were to determine the form of MSP in circulating blood and to study proteolytic activation of pro-MSP by its target cell. Western blot of immunoaffinity-purified serum MSP showed that all the protein was pro-MSP, without detectable MSP. The circulating form of the protein is therefore pro-MSP, and conversion to MSP does not occur when blood is shed. Incubation of radiolabeled pro-MSP with murine peritoneal macrophages caused proteolytic cleavage to predominantly inactive fragments. Among several protease inhibitors, soybean trypsin inhibitor was one of two that inhibited nonspecific cleavage and revealed a macrophage proteolysis of pro-MSP, and certain concentrations enhanced cleavage to mature MSP. Macrophage membranes had nonspecific and specific pro-MSP proteolytic activity, which was not present in macrophage culture fluids. The results suggest that control of MSP activity can occur at the level of the target cell by proteolytic cleavage of pro-MSP to mature MSP or to inactive fragments.