Degradation of collagen is important for the physiological remodeling of connective tissues during growth and development as well as in wound healing, inflammatory diseases, and cancer cell invasion. In remodeling adult tissues, degradation of collagen occurs primarily through a phagocytic pathway. However, although various steps in the phagocytic pathway have been characterized, the enzyme required to initially fragment collagen fibrils for subsequent phagocytosis has not been identified. We have used laser confocal microscopy, transmission electron microscopy, and biochemical assays to show that human fibroblasts initiate degradation of collagen through the collagenase activity of the membrane-bound metalloproteinase MT1-MMP. Degradation of natural and reconstituted collagen substrates correlated with the expression of MT1-MMP, which was localized at sites of collagen cleavage at the surface of the cells and also within the cells, whereas collagen degradation was abrogated when MT1-MMP expression was blocked by small interfering RNA treatment. In contrast to MT1-MMP, the gelatinolytic activity of MMP-2 was not required for collagen phagocytosis. These studies demonstrate a pivotal role of catalytically active MT1-MMP in preparing collagen fibrils for phagocytic degradation.