Carboxypeptidase M (CPM) is a membrane-bound zinc-dependent protease that cleaves C-terminal basic residues, such as arginine or lysine, from peptides/proteins. We examined whether CPM is expressed by hematopoietic and stromal cells and could degrade stromal cell-derived factor (SDF)-1alpha, a potent chemoattractant for hematopoietic stem/progenitor cells (HSPC). We found that (a) CPM transcript is expressed by bone marrow (BM) and mobilized peripheral blood CD34(+) cells, myeloid, erythroid, and megakaryocytic cell progenitors, mononuclear cells (MNC), polymorphonuclear cells (PMN), and stromal cells, including mesenchymal stem cells; and that (b) granulocyte-colony-stimulating factor (G-CSF) significantly increases its expression at the gene and protein levels in MNC and PMN. Moreover, we found that recombinant CPM cleaves full-length SDF-1alpha (1-68) rapidly, removing the C-terminal lysine and yielding des-lys SDF-1alpha (1-67). We demonstrated that such CPM treatment of SDF-1alpha reduced the in vitro chemotaxis of HSPC, which, however, was preserved when the CPM was exposed to the carboxypeptidase inhibitor dl-2-mercaptomethyl-3-guanidino-ethylthiopropanoic acid. Thus, we present evidence that CPM is expressed by cells occurring in the BM microenvironment and that the mobilizing agent G-CSF strongly upregulates it in MNC and PMN. We suggest that cleavage of the C-terminal lysine residue of SDF-1alpha by CPM leads to attenuated chemotactic responses and could facilitate G-CSF-induced mobilization of HSPC from BM to peripheral blood.