Human 72-kDa type IV collagenase (72T4Cl) is secreted as a proenzyme that can form a specific stoichiometric complex with the tissue inhibitor of metalloproteases TIMP-2 via interaction with the carboxyl-terminal domain of the enzyme. Both complexed and free enzymes can be activated by treatment with organomercurials. The mechanism of the 72T4Cl activation under physiological conditions is not known. Here we describe a "plasma membrane-dependent" activation of inhibitor-free 72T4Cl and identify the first conversion intermediate as a 64-kDa species resulting from cleavage of the Asn37-Leu peptide bond in the presence of plasma membranes from 12-O-tetradecanoylphorbol-13-acetate-induced HT1080 cells. This reaction is specific for 72T4Cl in that a closely related proenzyme (92-kDa type IV collagenase) is resistant to activation under the same conditions. Formation of the 72T4Cl.TIMP-2 complex inhibits activation at the level of the initial Asn37-Leu cleavage. Addition of TIMP-1 has no effect on this reaction, but blocks the autocatalytic conversion of the Leu38 intermediate into a 62-kDa active enzyme with an amino-terminal Tyr81. Membrane-dependent activation of 72T4Cl is competitively inhibited in the presence of a 26-kDa peptide derived from the carboxyl-terminal domain of the enzyme. The results suggest that interaction of the carboxyl-terminal domain of the enzyme with a membrane-associated component(s) causes initiation of enzyme activation through an autoproteolytic mechanism.