Matriptase-2 is a member of the TTSPs (type II transmembrane serine proteases), an emerging class of cell surface proteases involved in tissue homoeostasis and several human disorders. Matriptase-2 exhibits a domain organization similar to other TTSPs, with a cytoplasmic N-terminus, a transmembrane domain and an extracellular C-terminus containing the non-catalytic stem region and the protease domain. To gain further insight into the biochemical functions of matriptase-2, we characterized the subcellular localization of the monomeric and multimeric form and identified cell surface shedding as a defining point in its proteolytic processing. Using HEK (human embryonic kidney)-293 cells, stably transfected with cDNA encoding human matriptase-2, we demonstrate a cell membrane localization for the inactive single-chain zymogen. Membrane-associated matriptase-2 is highly N-glycosylated and occurs in monomeric, as well as multimeric, forms covalently linked by disulfide bonds. Furthermore, matriptase-2 undergoes shedding into the conditioned medium as an activated two-chain form containing the catalytic domain, which is cleaved at the canonical activation motif, but is linked to a released portion of the stem region via a conserved disulfide bond. Cleavage sites were identified by MS, sequencing and mutational analysis. Interestingly, cell surface shedding and activation of a matriptase-2 variant bearing a mutation at the active-site serine residue is dependent on the catalytic activity of co-expressed or co-incubated wild-type matriptase-2, indicating a transactivation and trans-shedding mechanism.