We report the isolation and characterization of a cDNA encoding Dm2-MMP, the second matrix metalloproteinase (MMP) identified in the Drosophila melanogaster genome. The cloned cDNA codes for a polypeptide of 758 residues that displays a domain organization similar to that of other MMPs, including signal peptide, propeptide, catalytic, and hemopexin domains. However, the structure of Dm2-MMP is unique because of the presence of an insertion of 214 amino acids between the catalytic and hemopexin domains that is not present in any of the previously described MMPs. Dm2-MMP also contains a C-terminal extension predicted to form a cleavable glycosylphosphatidylinositol anchor site. Western blot and immunofluorescence analysis of S2 cells transfected with the isolated cDNA confirmed that Dm2-MMP is localized at the cell surface. Production of the catalytic domain of Dm2-MMP in Escherichia coli and analysis of its enzymatic activity revealed that this proteinase cleaves several synthetic peptides used for analysis of vertebrate MMPs. This proteolytic activity was abolished by MMP inhibitors such as BB-94, confirming that the isolated cDNA codes for an enzymatically active metalloproteinase. Reverse transcription-PCR analysis showed that Dm2-MMP is expressed at low levels in all of the developmental stages of Drosophila as well as in adult flies. However, detailed in situ hybridization at the larval stage revealed a strong tissue-specific expression in discrete regions of the brain and eye imaginal discs. According to these results, we propose that Dm2-MMP plays both general proteolytic functions during Drosophila development and in adult tissues and specific roles in eye development and neural tissues through the degradation and remodeling of the extracellular matrix.