Protease-activated receptors (PARs) are a family of seven-transmembrane, G-protein-coupled receptors that are activated by multiple serine proteases through specific N-terminal proteolytic cleavage and the unmasking of a tethered ligand. The majority of PAR-activating proteases described to date are soluble proteases that are active during injury, coagulation, and inflammation. Less investigation, however, has focused on the potential for membrane-anchored serine proteases to regulate PAR activation. Testisin is a unique trypsin-like serine protease that is tethered to the extracellular membrane of cells through a glycophosphatidylinositol (GPI) anchor. Here, we show that the N-terminal domain of PAR-2 is a substrate for testisin and that proteolytic cleavage of PAR-2 by recombinant testisin activates downstream signaling pathways, including intracellular Ca(2+) mobilization and ERK1/2 phosphorylation. When testisin and PAR-2 are co-expressed in HeLa cells, GPI-anchored testisin specifically releases the PAR-2 tethered ligand. Conversely, knockdown of endogenous testisin in NCI/ADR-Res ovarian tumor cells reduces PAR-2 N-terminal proteolytic cleavage. The cleavage of PAR-2 by testisin induces activation of the intracellular serum-response element and NFκB signaling pathways and the induction of IL-8 and IL-6 cytokine gene expression. Furthermore, the activation of PAR-2 by testisin results in the loss and internalization of PAR-2 from the cell surface. This study reveals a new biological substrate for testisin and is the first demonstration of the activation of a PAR by a serine protease GPI-linked to the cell surface.