Insulin-like growth factor binding protein-4 (IGFBP-4) is a 24-26-kD protein expressed by a variety of cell types in vivo and in vitro. Treatment of normal adult human fibroblasts with 10 nM insulin-like growth factor II (IGF-II) for 24 h resulted in an 85% decrease in endogenous IGFBP-4, as assessed by Western ligand blot analysis of the conditioned medium. Incubation of human fibroblast-conditioned medium (HFCM) with IGF-II under cell-free conditions led to a similar loss of IGFBP-4. This posttranslationally regulated decrease in IGFBP-4 appeared to be due to a protease in HFCM: (a) It could be prevented with specific protease inhibitors or incubation at 4 degrees C; (b) proteolysis of recombinant human (rh) IGFBP-4 required HFCM; (c) immunoblotting and radiolabeling confirmed cleavage of IGFBP-4 into 18- and 14-kD IGFBP-4 fragments. The protease was specific for IGFBP-4, and was strictly dependent on IGFs for activation. IGF-II was the most effective of the natural and mutant IGFs tested, inducing complete hydrolysis of rhIGFBP-4 at a molar ratio of 0.25:1 (IGF/IGFBP-4). Simian virus 40-transformed adult human fibroblasts also expressed IGFBP-4 and IGFBP-4 protease, as well as an inhibitor of IGFBP-4 proteolysis. In biological studies, intact rhIGFBP-4 potently inhibited IGF-I-stimulated [3H]aminoisobutyric acid uptake, whereas proteolyzed rhIGFBP-4 had no inhibitory effect. In conclusion, these data provide evidence for a novel IGF-dependent IGFBP-4-specific protease that modifies IGFBP-4 structure and function, and indicate a preferential role for IGF-II in its activation. Posttranslational regulation of IGFBP-4 may provide a means for cooperative control of local cell growth by IGF-I and IGF-II.