We report a proteinase that degrades basement-membrane (type IV) collagen and is produced by the liver. Its cellular source is lipocytes (fat-storing or Ito cells). Lipocytes were isolated from normal rat liver and established in primary culture. The cells synthesize and secrete a neutral proteinase, which by gelatin-substrate gel electrophoresis and gel filtration chromatography, has a molecular mass of 65,000 D. The enzyme is secreted in latent form and is activated by p-aminophenylmercuric acetate but not by trypsin. Enzyme activity in the presence of EDTA is restored selectively by zinc and is unaffected by serine-protease inhibitors. In assays with radiolabeled soluble substrates, it degrades native type IV (basement membrane) collagen but not interstitial collagen types I or V and exhibits no activity against laminin or casein. At temperatures causing partial denaturation of soluble collagen in vitro, it rapidly degrades types I and V. Thus, it is both a type IV collagenase and gelatinase. The enzyme may play a role in initiating breakdown of the subendothelial matrix in the Disse space as well as augmenting the effects of collagenases that attack native interstitial collagen.