The 16 kDa N-terminal fragment of prolactin (16K-prolactin) is a potent antiangiogenic factor. Here, we demonstrate that matrix metalloproteases (MMPs) produced and secreted by chondrocytes generate biologically functional 16K-prolactin from full-length prolactin. When incubated with human prolactin at neutral pH, chondrocyte extracts and conditioned medium, as well as chondrocytes in culture, cleaved the Ser155-Leu156 peptide bond in prolactin, yielding - upon reduction of intramolecular disulfide bonds - a 16 kDa N-terminal fragment. This 16K-prolactin inhibited basic fibroblast growth factor (FGF)-induced endothelial cell proliferation in vitro. The Ser155-Leu156 site is highly conserved, and both human and rat prolactin were cleaved at this site by chondrocytes from either species. Conversion of prolactin to 16K-prolactin by chondrocyte lysates was completely abolished by the MMP inhibitors EDTA, GM6001 or 1,10-phenanthroline. Purified MMP-1, MMP-2, MMP-3, MMP-8, MMP-9 and MMP-13 cleaved human prolactin at Gln157, one residue downstream from the chondrocyte protease cleavage site, with the following relative potency: MMP-8 > MMP-13 > MMP-3 > MMP-1= MMP-2 > MMP-9. Finally, chondrocytes expressed prolactin mRNA (as revealed by RT-PCR) and they contained and released antiangiogenic N-terminal 16 kDa prolactin (detected by western blot and endothelial cell proliferation). These results suggest that several matrix metalloproteases in cartilage generate antiangiogenic 16K-prolactin from systemically derived or locally produced prolactin.