Pancreatic cancer is associated with a pronounced fibrotic reaction that was recently shown to limit delivery of chemotherapy. To identify potential therapeutic targets to overcome this fibrosis, we examined the interplay between fibrosis and the key proteinase membrane type 1-matrix metalloproteinase (MT1-MMP, MMP-14), which is required for growth and invasion in the collagen-rich microenvironment. In this article, we show that compared with control mice (Kras⁺/MT1-MMP⁻) that express an activating Kras^G12D mutation necessary for pancreatic cancer development, littermate mice that express both MT1-MMP and Kras^G12D (Kras⁺/MT1-MMP⁺) developed a greater number of large, dysplastic mucin-containing papillary lesions. These lesions were associated with a significant amount of surrounding fibrosis, increased α-smooth muscle actin (+) cells in the stroma, indicative of activated myofibroblasts, and increased Smad2 phosphorylation. To further understand how MT1-MMP promotes fibrosis, we established an in vitro model to examine the effect of expressing MT1-MMP in pancreatic ductal adenocarcinoma (PDAC) cells on stellate cell collagen deposition. Conditioned media from MT1-MMP–expressing PDAC cells grown in three-dimensional collagen enhanced Smad2 nuclear translocation, promoted Smad2 phosphorylation, and increased collagen production by stellate cells. Inhibiting the activity or expression of the TGF-β type I receptor in stellate cells attenuated MT1-MMP conditioned medium–induced collagen expression by stellate cells. In addition, a function-blocking anti–TGF-β antibody also inhibited MT1-MMP conditioned medium–induced collagen expression in stellate cells. Overall, we show that the bona fide collagenase MT1-MMP paradoxically contributes to fibrosis by increasing TGF-β signaling and that targeting MT1-MMP may thus help to mitigate fibrosis. Mol Cancer Res; 9(10); 1294–304. ©2011 AACR.