Matrix metalloproteinases (MMP) are an important family of proteases which catalyze the degradation of extracellular matrix components. While the mechanism of peptide cleavage is well established, the process of enzyme regeneration, which represents the rate limiting step of the catalytic cycle, remains unresolved. This step involves the loss of the newly formed N-terminus (amine) and C-terminus (carboxylate) protein fragments from the site of catalysis coupled with the inclusion of one or more solvent waters. Here we report a novel crystal structure of membrane type I MMP (MT1-MMP or MMP-14), which includes a small peptide bound at the catalytic Zn site via its C-terminus. This structure models the initial product state formed immediately after peptide cleavage but before the final proton transfer to the bound amine; the amine is not present in our system and as such proton transfer cannot occur. Modeling of the protein, including earlier structural data of Bertini and coworkers [I. Bertini, et al., Angew. Chem., Int. Ed., 2006, 45, 7952-7955], suggests that the C-terminus of the peptide is positioned to form an H-bond network to the amine site, which is mediated by a single oxygen of the functionally important Glu240 residue, facilitating efficient proton transfer. Additional quantum chemical calculations complemented with magneto-optical and magnetic resonance spectroscopies clarify the role of two additional, non-catalytic first coordination sphere waters identified in the crystal structure. One of these auxiliary waters acts to stabilize key intermediates of the reaction, while the second is proposed to facilitate C-fragment release, triggered by protonation of the amine. Together these results complete the enzymatic cycle of MMPs and provide new design criteria for inhibitors with improved efficacy.