Functioning as an extracellular protease, dipeptidyl peptidase IV (DPP-IV) preferentially cleaves the peptide bond after the penultimate proline residue. We report here that DPP-IV cleaves the first two amino acids from insulin-like growth factor 1 (IGF-1), revealed by mass spectrometry. The kinetic parameters of the proteolytic cleavage indicate that this reaction is physiologically relevant. Interestingly, truncated IGF-1 is less potent than the full-length protein in activating the IGF-1R, but binds more readily to IGF-binding protein 3 (IGFBP3). Quantitative RT-PCR showed that the level of DPP-IV mRNA is dramatically lower in lung squamous cell carcinoma tissues than in adjacent nonneoplastic lung tissues. However, this reduction was not observed in lung adenocarcinoma tissues. Our study suggests a possible link between IGF-1 and DPP-IV in cancer development in a specific tumor niche. A DPP-IV-related pathway may be important in mitigating IGF-1 signaling. Consequently, a robust IGF signaling pathway may accelerate early carcinogenesis in environments lacking DPP-IV.