The chemokine stromal-derived factor-1 (SDF-1), which is constitutively expressed in most tissues as SDF-1alpha and SDF-1beta resulting from alternative gene splicing, regulates hematopoiesis, lymphocyte homing, B-lineage cell growth, and angiogenesis. Because SDF-1alpha and SDF-1beta are constitutively and ubiquitously expressed, their degradation must serve an important regulatory role. Here we show that SDF-1alpha and SDF-1beta are secreted as full-length molecules. When exposed to human serum, full-length SDF-1alpha (1-68) undergoes processing first at the COOH terminus to produce SDF-1alpha 1-67 and then at the NH2 terminus to produce SDF-1alpha 3-67. By contrast, full-length SDF-1beta (1-72) is processed only at the NH2 terminus to produce SDF-1beta 3-72. CD26/dipeptidyl peptidase is responsible for serum cleavage of SDF-1alpha and SDF-1beta at the NH2 terminus. Serum processing of SDF-1alpha at the COOH terminus, which has not been previously reported, reduces the ability of the polypeptide to bind to heparin and to cells and to stimulate B-cell proliferation and chemotaxis. The additional processing at the NH2 terminus renders both forms of SDF-1 unable to bind to heparin and to activate cells. The differential processing of SDF-1alpha and SDF-1beta provides biologic significance to the existence of 2 splice forms of the chemokine and adds a tool to precisely regulate SDF-1's biologic activity by changes in specific activity.