Conventional cancer chemotherapy is limited by systemic toxicity and poor selectivity. Tumor-selective activation of glucuronide prodrugs by beta-glucuronidase in the tumor microenvironment in a monotherapeutic approach is one promising way to increase cancer selectivity. Here we examined the cellular requirement for enzymatic activation as well as the in vivo toxicity and antitumor activity of a glucuronide prodrug of a potent duocarmycin analogue that is active at low picomolar concentrations. Prodrug activation by intracellular and extracellular beta-glucuronidase was investigated by measuring prodrug 2 cytotoxicity against human cancer cell lines that displayed different endogenous levels of beta-glucuronidase, as well as against beta-glucuronidase-deficient fibroblasts and newly established beta-glucuronidase knockdown cancer lines. In all cases, glucuronide prodrug 2 was 1000-5000 times less cytotoxic than the parent duocarmycin analogue regardless of intracellular levels of beta-glucuronidase. By contrast, cancer cells that displayed tethered beta-glucuronidase on their plasma membrane were 80-fold more sensitive to glucuronide prodrug 2, demonstrating that prodrug activation depended primarily on extracellular rather than intracellular beta-glucuronidase activity. Glucuronide prodrug 2 (2.5 mg/kg) displayed greater antitumor activity and less systemic toxicity in vivo than the clinically used drug carboplatin (50 mg/kg) to mice bearing human lung cancer xenografts. Intratumoral injection of an adenoviral vector expressing membrane-tethered beta-glucuronidase dramatically enhanced the in vivo antitumor activity of prodrug 2. Our data provide evidence that increasing extracellular beta-glucuronidase activity in the tumor microenvironment can boost the therapeutic index of a highly potent glucuronide prodrug.