Membrane-type 1 matrix metalloproteinase (MT1-MMP), a transmembrane proteinase with a short cytoplasmic domain and an extracellular catalytic domain, controls a variety of physiological and pathological processes through the proteolytic degradation of extracellular or transmembrane proteins. MT1-MMP forms a complex on the cell membrane with its physiological protein inhibitor, tissue inhibitor of metalloproteinases-2 (TIMP-2). Here we show that, in addition to extracellular proteolysis, MT1-MMP and TIMP-2 control cell proliferation and migration through a non-proteolytic mechanism. TIMP-2 binding to MT1-MMP induces activation of ERK1/2 by a mechanism that does not require the proteolytic activity and is mediated by the cytoplasmic tail of MT1-MMP. MT1-MMP-mediated activation of ERK1/2 up-regulates cell migration and proliferation in vitro independently of extracellular matrix proteolysis. Proteolytically inactive MT1-MMP promotes tumor growth in vivo, whereas proteolytically active MT1-MMP devoid of cytoplasmic tail does not have this effect. These findings illustrate a novel role for MT1-MMP-TIMP-2 interaction, which controls cell functions by a mechanism independent of extracellular matrix degradation.