Previous studies have shown that membrane type 1-matrix metalloproteinase (MT1-MMP) (MMP-14) initiates pro-MMP-2 activation in a process that is tightly regulated by the level of tissue inhibitor of metalloproteinase (TIMP)-2. However, given the difficulty in modulating TIMP-2 levels, the direct effect of TIMP-2 on MT1-MMP processing and on pro-MMP-2 activation in a cellular system could not be established. Here, recombinant vaccinia viruses encoding full-length MT1-MMP or TIMP-2 were used to express MT1-MMP alone or in combination with various levels of TIMP-2 in mammalian cells. We show that TIMP-2 regulates the amount of active MT1-MMP (57 kDa) on the cell surface whereas in the absence of TIMP-2 MT1-MMP undergoes autocatalysis to a 44-kDa form, which displays a N terminus starting at Gly(285) and hence lacks the entire catalytic domain. Neither pro-MT1-MMP (N terminus Ser(24)) nor the 44-kDa form bound TIMP-2. In contrast, active MT1-MMP (N terminus Tyr(112)) formed a complex with TIMP-2 suggesting that regulation of MT1-MMP processing is mediated by a complex of TIMP-2 with the active enzyme. Consistently, TIMP-2 enhanced the activation of pro-MMP-2 by MT1-MMP. Thus, under controlled conditions, TIMP-2 may act as a positive regulator of MT1-MMP activity by promoting the availability of active MT1-MMP on the cell surface and consequently, may support pericellular proteolysis.