Derivative myelin associated glycoprotein (dMAG) results from proteolysis of transmembrane MAG and can inhibit axonal growth. We have tested the ability of certain matrix metalloproteinases (MMPs) elevated with inflammatory and demyelinating diseases to cleave MAG. We show MMP-2, MMP-7 and MMP-9, but not MMP-1, cleave recombinant human MAG. Cleavage by MMP-7 occurs at Leu 509, just distal to the transmembrane domain and, to a lesser extent, at Met 234. We also show that MMP-7 cleaves MAG expressed on the external surface of CHO cells, releasing fragments that accumulate in the medium over periods of up to 48 h or more and that are able to inhibit outgrowth by dorsal root ganglion (DRG) neurons. We conclude that MMPs may have the potential both to disrupt MAG dependent axon-glia communication and to generate bioactive fragments that can inhibit neurite growth.