Epithelial cells maintained in culture medium containing low calcium proteolytically process laminin 5 (alpha3beta3gamma2) within the alpha3 and gamma2 chains (). Experiments were designed to identify the enzyme(s) responsible for the laminin 5 processing and the sites of proteolytic cleavage. To characterize the nature of laminin 5 processing, we determined the N-terminal amino acid sequences of the proteolytic fragments produced by the processing events. The results indicate that the first alpha3 chain cleavage (200-l65 kDa alpha3) occurs within subdomain G4 of the G domain. The second cleavage (l65-l45 kDa alpha3) occurs within the lIla domain, 11 residues N-terminal to the start of domain II. The gamma chain is cleaved within the second epidermal growth factor-like repeat of domain Ill. The sequence cleaved within the gamma2 chain matches the consensus sequence for the cleavage of type I, II, and III procollagens by bone morphogenetic protein-1 (BMP-1), also known as type I procollagen C-proteinase (). Recombinant BMP-1 cleaves gamma2 in vitro, both within intact laminin 5 and at the predicted site of a recombinant gamma2 short arm. alpha3 is also cleaved by BMP-1 in vitro, but the cleavage site is yet to be determined. These results show the laminin alpha3 and gamma2 chains to be substrates for BMP-1 in vitro. We speculate that gamma2 cleavage is required for formation of the laminin 5-6 complex and that this complex is directly involved in assembly of the interhemidesmosomal basement membrane. This further suggests that BMP-1 activity facilitates basement membrane assembly, but not hemidesmosome assembly, in the laminin 5-rich dermal-epidermal junction basement membrane in vivo.