Hepatocyte growth factor activator inhibitor-1 (HAI-1) is an integral membrane protein expressed on epithelial cells and contains two extracellular Kunitz domains (N-terminal KD1 and C-terminal KD2) known to inhibit trypsin-like serine proteases. In tumorigenesis and tissue regeneration, HAI-1 regulates the hepatocyte growth factor (HGF)/c-Met pathway by inhibiting the activity of HGF activator (HGFA) and matriptase, two serine proteases that convert pro-HGF into its biologically active form. By screening a placental cDNA library, we discovered a new splice variant of HAI-1 designated HAI-1B that contains an extra 16 amino acids adjacent to the C terminus of KD1. To investigate possible consequences on Kunitz domain function, a soluble form of HAI-1B (sHAI-1B) comprising the entire extracellular domain was produced. First, we found that sHAI-1B displayed remarkable enzyme specificity by potently inhibiting only HGFA (IC50 = 30.5 nm), matriptase (IC50 = 16.5 nm), and trypsin (IC50 = 2.4 nm) among 16 serine proteases examined, including plasminogen activators (urokinase- and tissue-type plasminogen activators), coagulation enzymes thrombin, factors VIIa, Xa, XIa, and XIIa, and activated protein C. Relatively weak inhibition was found for plasmin (IC50 = 399 nm) and plasma kallikrein (IC50 = 686 nm). Second, the functions of the KD1 and KD2 domains in sHAI-1B were investigated using P1 residue-directed mutagenesis to show that inhibition of HGFA, matriptase, trypsin, and plasmin was due to KD1 and not KD2. Furthermore, analysis by reverse transcription-PCR demonstrated that HAI-1B and HAI-1 were co-expressed in normal tissues and various epithelial-derived cancer cell lines. Both isoforms were up-regulated in eight examined ovarian carcinoma specimens, three of which had higher levels of HAI-1B RNA than of HAI-1 RNA. Therefore, previously demonstrated roles of HAI-1 in various physiological and pathological processes likely involve both HAI-1B and HAI-1.