Co‐expression of membrane‐type 1 (MT1)‐MMP with hepatocyte growth factor activator inhibitor‐1 (HAI‐1) in HEK293T cells resulted in cleavage of HAI‐1 to produce three fragments. Recombinant MT1‐MMP was shown to cleave HAI‐1 protein in vitro. Hepatocyte growth factor activator inhibitor‐1 was initially identified as the cognate inhibitor of matriptase, a transmembrane serine protease that processes urokinase‐type plasminogen activator (uPA). Co‐expression of HAI‐1 with matriptase suppressed matriptase protease activity, and co‐expression of MT1‐MMP with them resulted in recovery of matriptase activity by stimulating shedding of HAI‐1 fragments. Matriptase protein was detected in squamous carcinoma‐derived HSC‐4 cells, however, matriptase protease activity was undetectable. Transfection of siRNA for HAI‐1 enhanced serine protease activity, which was suppressed by cotransfection of matriptase siRNA. Collagen‐gel culture or treatment with concanavalin A (ConA) of HSC‐4 cells enhanced MT1‐MMP activity, which induced shedding of HAI‐1 fragments and conversely stimulated uPA activation by these cells. Serine protease activity, including uPA activation of cells treated with ConA, was abrogated by downregulation of either matriptase or MT1‐MMP through the transfection of each siRNA. These results suggest that MT1‐MMP induced by collagen‐gel culture or ConA treatment causes cleavage and shedding of HAI‐1 protein, which allows activation of matriptase in HSC‐4 cells. HSC‐4 cells showed a characteristic invasive growth by forming vacuole‐like structures in collagen gel, which was suppressed by transfection of siRNA for either MT1‐MMP or matriptase, suggesting that activation of matriptase through the cleavage of HAI‐1 is one of the MT1‐MMP multifunctions essential for invasive growth of HSC‐4 cells. (Cancer Sci 2012; 103: 448–454)