To understand the biologic function of TIMP-2, a member of the tissue inhibitors of metalloproteinases family, an inactivating mutation was introduced in the mouse Timp-2 gene by homologous recombination. Outbred homozygous mutants developed and procreated indistinguishably from wild type littermates, suggesting that fertility, development, and growth are not critically dependent on TIMP-2. Lack of functional TIMP-2, however, dramatically altered the activation of proMMP-2 both in vivo and in vitro. Fully functional TIMP-2 is essential for efficient activation of proMMP-2 in vivo. No evidence of successful functional compensation was observed. The results illustrate the duality of TIMP-2 function, i.e. at low concentrations, TIMP-2 exerts a "catalytic" or enhancing effect on cell-mediated proMMP-2 activation, whereas at higher concentrations, TIMP-2 inhibits the activation and/or activity of MMP-2.