We report the identification and functional analysis of a type II transmembrane serine protease encoded by the mouse differentially expressed in squamous cell carcinoma (DESC) 1 gene, and the definition of a cluster of seven homologous DESC1-like genes within a 0.5-Mb region of mouse chromosome 5E1. This locus is syntenic to a region of human chromosome 4q13.3 containing the human orthologues of four of the mouse DESC1-like genes. Bioinformatic analysis indicated that all seven DESC1-like genes encode functional proteases. Direct cDNA cloning showed that mouse DESC1 encodes a multidomain serine protease with an N-terminal signal anchor, a SEA (sea urchin sperm protein, enterokinase, and agrin) domain, and a C-terminal serine protease domain. The mouse DESC1 mRNA was present in epidermal, oral, and male reproductive tissues and directed the translation of a membrane-associated 60-kDa N-glycosylated protein with type II topology. Mouse DESC1 was synthesized in insect cells as a zymogen that could be activated by exposure to trypsin. The purified activated DESC1 hydrolyzed synthetic peptide substrates, showing a preference for Arg in the P1 position. DESC1 proteolytic activity was abolished by generic inhibitors of serine proteases but not by other classes of protease inhibitors. Most interestingly, DESC1 formed stable inhibitory complexes with both plasminogen activator inhibitor-1 and protein C inhibitor that are expressed in the same tissues with DESC1, suggesting that type II transmembrane serine proteases may be novel targets for serpin inhibition. Together, these data show that mouse DESC1 encodes a functional cell surface serine protease that may have important functions in the epidermis, oral, and reproductive epithelium.