The discoidin domain receptors (DDRs) are receptor tyrosine kinases that upon binding to collagens undergo receptor phosphorylation, which in turn activates signal transduction pathways that regulate cell-collagen interactions. We report here that collagen-dependent DDR1 activation is partly regulated by the proteolytic activity of the membrane-anchored collagenases, MT1-, MT2-, and MT3-matrix metalloproteinase (MMP). These collagenases cleave DDR1 and attenuate collagen I- and IV-induced receptor phosphorylation. This effect is not due to ligand degradation, as it proceeds even when the receptor is stimulated with collagenase-resistant collagen I (r/r) or with a triple-helical peptide harboring the DDR recognition motif in collagens. Moreover, the secreted collagenases MMP-1 and MMP-13 and the glycosylphosphatidylinositol-anchored membrane-type MMPs (MT4- and MT6-MMP) have no effect on DDR1 cleavage or activation. N-terminal sequencing of the MT1-MMP-mediated cleaved products and mutational analyses show that cleavage of DDR1 takes place within the extracellular juxtamembrane region, generating a membrane-anchored C-terminal fragment. Metalloproteinase inhibitor studies show that constitutive shedding of endogenous DDR1 in breast cancer HCC1806 cells is partly mediated by MT1-MMP, which also regulates collagen-induced receptor activation. Taken together, these data suggest a role for the collagenase of membrane-type MMPs in regulation of DDR1 cleavage and activation at the cell-matrix interface.