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Alpha-1 antitrypsin (AAT) deficiency-associated emphysema is largely attributed to insufficient inhibition of neutrophil elastase released from neutrophils. Correcting AAT levels using augmentation therapy only slows disease progression, and that suggests a more complex process of lung destruction. Because alveolar macrophages (Mφ) express AAT, we propose that the expression and intracellular accumulation of mutated Z-AAT (the most common mutation) compromises Mφ function and contributes to emphysema development. Extracellular matrix (ECM) degradation is a hallmark of emphysema pathology. In this study, Mφ from individuals with Z-AAT (Z-Mφ) have greater proteolytic activity on ECM than do normal Mφ. This abnormal Z-Mφ activity is not abrogated by supplementation with exogenous AAT and is likely the result of cellular dysfunction induced by intracellular accumulation of Z-AAT. Using pharmacologic inhibitors, we show that several classes of proteases are involved in matrix degradation by Z-Mφ. Importantly, compared with normal Mφ, the membrane-bound serine protease, matriptase, is present in Z-Mφ at higher levels and contributes to their proteolytic activity on ECM. In addition, we identified matrix metalloproteinase (MMP)-14, a membrane-anchored metalloproteinase, as a novel substrate for matriptase, and showed that matriptase regulates the levels of MMP-14 on the cell surface. Thus, high levels of matriptase may contribute to increased ECM degradation by Z-Mφ, both directly and through MMP-14 activation. In summary, the expression of Z-AAT in Mφ confers increased proteolytic activity on ECM. This proteolytic activity is not rescued by exogenous AAT supplementation and could thus contribute to augmentation resistance in AAT deficiency-associated emphysema.