Matrilysin-1 (also called matrix metalloproteinase-7) is expressed in injured lung and in cancer but not in normal epithelia. Bronchiolization of the alveoli (BOA), a potential precursor of lung cancer, is a histologically distinct type of metaplasia that is composed of cells resembling airway epithelium in the alveolar compartment. We demonstrate that there is increased expression of matrilysin-1 in human lesions and BOA in the CC10-human achaete-scute homolog-1 transgenic mouse model. Forced expression of the matrilysin-1 gene in immortalized human normal airway epithelial BEAS-2B and HPLD1 cells, which do not normally express matrilysin-1, promoted cellular migration, suggesting a functional link for BOA formation via bronchiolar cell migration. In addition, matrilysin-1 stimulated proliferation and inhibited Fas-induced apoptosis, while a knockdown by RNA interference decreased cell growth, migration, and increased sensitivity to apoptosis. Western blotting demonstrated increased levels of phospho-p38 and phospho-Erk1/2 kinases after matrilysin-1 expression. Gene expression analysis uncovered several genes that were related to cell growth, migration/movement, and death, which could potentially facilitate bronchiolization. In vivo, the formation of BOA lesions was reduced when CC10-human achaete-scute homolog-1 mice were crossed with matrilysin-1 null mice and was correlated with reduced matrilysin-1 expression in BOA. We conclude that matrilysin-1 may play an important role in the bronchiolization of alveoli by promoting proliferation, migration, and attenuation of apoptosis involving multiple genes in the MAP kinase pathway.