Matriptase and prostasin are part of a cell surface proteolytic pathway critical for epithelial development and homeostasis. Here we have used a reconstituted cell-based system and transgenic mice to investigate the mechanistic interrelationship between the two proteases. We show that matriptase and prostasin form a reciprocal zymogen activation complex with unique features. Prostasin serves as a critical co-factor for matriptase activation. Unexpectedly, however, prostasin-induced matriptase activation requires neither prostasin zymogen conversion nor prostasin catalytic activity. Prostasin zymogen conversion to active prostasin is dependent on matriptase but does not require matriptase zymogen conversion. Consistent with these findings, wild type prostasin, activation cleavage site-mutated prostasin, and catalytically inactive prostasin all were biologically active in vivo when overexpressed in the epidermis of transgenic mice, giving rise to a severe skin phenotype. Our finding of non-enzymatic stimulation of matriptase activation by prostasin and activation of prostasin by the matriptase zymogen provides a tentative mechanistic explanation for several hitherto unaccounted for genetic and biochemical observations regarding these two membrane-anchored serine proteases and their downstream targets.