Membrane-type serine protease 1 (MT-SP1) was recently cloned, and we now report its biochemical characterization. MT-SP1 is predicted to be a type II transmembrane protein with an extracellular protease domain. This localization was experimentally verified using immunofluorescent microscopy and a cell-surface biotinylation technique. The substrate specificity of MT-SP1 was determined using a positional scanning-synthetic combinatorial library and substrate phage techniques. The preferred cleavage sequences were found to be (P4-(Arg/Lys)P3-(X)P2-(Ser)P1-(Arg)P1'-(Ala)) and (P4-(X)P3-(Arg/Lys)P2-(Ser)P1(Arg) P1'(Ala)), where X is a non-basic amino acid. Protease-activated receptor 2 (PAR2) and single-chain urokinase-type plasminogen activator are proteins that are localized to the extracellular surface and contain the preferred MT-SP1 cleavage sequence. The ability of MT-SP1 to activate PARs was assessed by exposing PAR-expressing Xenopus oocytes to the soluble MT-SP1 protease domain. The latter triggered calcium signaling in PAR2-expressing oocytes at 10 nm but failed to trigger calcium signaling in oocytes expressing PAR1, PAR3, or PAR4 at 100 nm. Single-chain urokinase-type plasminogen activator was activated using catalytic amounts of MT-SP1 (1 nm), but plasminogen was not cleaved under similar conditions. The membrane localization of MT-SP1 and its affinity for these key extracellular substrates suggests a role of the proteolytic activity in regulatory events.