We present a cascade of proteolytic events catalyzed by the proteases secreted by cultured keratinocytes and fibroblasts that results in the activation of interstitial procollagenase. Cultured human skin fibroblasts constitutively secrete interstitial collagenase and stromelysin as proenzymes. In contrast, interstitial collagenase found in serum-free skin organ culture conditioned medium is activated. Cocultivation of the major cellular components of skin organ culture, dermal fibroblasts and epidermal keratinocytes, induces activation of interstitial procollagenase and prostromelysin in the presence of plasminogen. This activation occurs through a urokinase-dependent pathway where added keratinocytes secrete the plasminogen activator urokinase, which converts plasminogen into plasmin. Plasmin is capable of activating purified procollagenase and prostromelysin. Plasmin-dependent activation of procollagenase generates an enzyme species, by amino-terminal processing, identical to those generated by limited proteolysis with trypsin or treatment with organomercurial compounds. Catalytic amounts of activated stromelysin can in turn convert plasmin- or trypsin-activated collagenase into a fully active enzyme by removal of approximately 15 amino acid residues from the carboxyl end of the enzyme. This results in a 5- to 8-fold increase in collagenase specific activity that is due to its proteolytic cleavage and not to the presence of the activator stromelysin. Stromelysin alone in both pro- and activated forms is not capable of efficient activation of human fibroblast interstitial procollagenase.