Recombinant human IGFBP-3 was proteolysed with different concentrations of plasmin for various periods of time. The major IGFBP-3 fragment resulting from this digestion migrated at ca. 15 kDa in nonreducing SDS-PAGE. Following the identification of this fragment as an N-terminal IGFBP-3 fragment, by use of N-terminus-specific monoclonal antibody and amino acid sequence analysis, we constructed and expressed a similar fragment in a baculovirus expression system. The fragments resulting from plasmin digestion, as well as the baculovirus-expressed recombinant human IGFBP-3(1-97), retain weak IGF binding and show specific insulin binding on cross-linking and western ligand blot. RhIGFBP-3(1-97) can inhibit insulin receptor autophosphorylation in insulin receptor-overexpressing NIH 3T3 cells. Insulin and IGF binding to IGFBP-3 fragments could be further demonstrated in normal urine. These data indicate the physiological significance of IGFBP-3 fragments derived from proteolysis in vivo.