The mammalian bone morphogenetic protein-1 (BMP-1)/Tolloid-related metalloproteinases play key roles in regulating formation of the extracellular matrix (ECM) via biosynthetic processing of various precursor proteins into mature functional enzymes, structural proteins, and proteins involved in initiating the mineralization of hard tissue ECMs. They also have been shown to activate several members of the transforming growth factor-beta superfamily, and may serve to coordinate such activation with formation of the ECM in morphogenetic events. Osteoglycin (OGN), a small leucine-rich proteoglycan with unclear functions, is found in cornea, bone, and other tissues, and appears to undergo proteolytic processing in vivo. Here we have successfully generated recombinant OGN and have employed it to demonstrate that a pro-form of OGN is processed to varying extents by all four mammalian BMP-1/Tolloid-like proteinases, to generate a 27-kDa species that corresponds to the major form of OGN found in cornea. Moreover, whereas wild-type mouse embryo fibroblasts (MEFs) produce primarily the processed, mature form of OGN, MEFs homozygous null for genes encoding three of the four mammalian BMP-1/Tolloid-related proteinases produce only unprocessed pro-OGN. Thus, all detectable pro-OGN processing activity in MEFs is accounted for by products of these genes. We also demonstrate that both pro- and mature OGN can regulate type I collagen fibrillogenesis, and that processing of the prodomain by BMP-1 potentiates the ability of OGN to modulate the formation of collagen fibrils.