Matrix metalloproteinase-7 (MMP-7) secreted by cancer cells has been implicated classically in the basement membrane destruction associated with tumor cell invasion and metastasis. Recent epidemiologic studies have established a correlation between high levels of circulating insulin-like growth factor (IGF) and low levels of IGF binding protein 3 (IGFBP-3), and relative risk of developing colon, breast, prostate, and lung cancer, which are known to produce MMP-7. In this study, IGFBP-3 was assessed as a candidate for the physiologic substrate of MMP-7. MMP-7 proteolysis generated four major fragments (26 kDa, 17 kDa, 15.5 kDa, and 15.5 kDa), and two cleavage sites were identified: one at the site of hydrolysis of the K(144)-I(145) peptide bond and one at the R(95)-L(96) peptide bond. The former site is different from the previously reported site of cleavage of IGFBP-3 by other proteases. Addition of IGFBP-3 inhibited IGF-I-mediated IGF type 1 receptor (IGF-IR) phosphorylation and activation of the downstream molecule Akt in BALB/c 3T3 fibroblasts overexpressing human IGF-IR (3T3-IGF-IR) and in two human colon cancer cell lines (COLO201 and HT29). Coincubation of the IGF-I/IGFBP-3 complex with MMP-7 restored IGF-I-mediated IGF-IR phosphorylation and activation of Akt in these cell lines. The IGF-I signal recovered by MMP-7 protected against apoptosis induced by anoikis in 3T3-IGF-IR cells. These results indicate that MMP-7 proteolysis of IGFBP-3 plays a crucial role in regulating IGF-I bioavailability, thereby promoting cell survival. This mechanism may contribute to the tumorigenesis of MMP-7-producing IGF-IR-expressing tumors in the primary site and to organ-specific metastasis in a paracrine manner.