MT1-MMP is a potent collagenase not only required for skeletal development but also implicated in tumor invasion and metastasis. The mechanism through which cellsdeploy MT1-MMP to mediate collagenolysis remains largely unknown. C-terminally truncated MT1-MMP lacking its transmembrane and cytoplasmic domains, although proteolytic active in purified forms, is known to be deficient in cell-mediated proMMP2 activation and collagenolysis, suggesting that cells regulate its activity through both domains. Indeed, the cytoplasmic domain is recognized by the trafficking machinery that mediates its internalization and recycling. Here we demonstrate that its transmembrane domain can be functionally substituted by the glycosylphosphatidylinositol (GPI)-anchor of MT6-MMP. The GPI-anchored MT1-MMP, or MT1-GPI, activates proMMP2 on the cell surface and promotes cell growth in a three-dimensional type I collagen matrix. On the other hand, a GPI-anchored MMP13 with a functional furin activation signal fails to promote cell growth in a three-dimensional collagen matrix, whereas remaining competent in collagenolysis on a two-dimensional collagen matrix under serum-free conditions. alpha(2) macroglobulin (alpha(2)M) or serum is sufficient to inhibit the collagenase activity of GPI-anchored active MMP13. Our results suggest that both membrane-tethering and proteolytic activity encoded by MT1-MMP are required for its ability to promote cell growth and invasion in a three-dimensional collagen matrix.