Pregnancy-associated plasma protein A (PAPPA) is a metzincin superfamily metalloproteinase in the insulin-like growth factor (IGF) system. PAPPA increases IGF bioavailability and mitogenic effectiveness in vitro through regulated cleavage of IGF-binding protein 4 (IGFBP4). To determine its function in vivo, we generated PAPPA-null mice by gene targeting. Mice homozygous for targeted disruption of the PAPPA gene were viable but 60% the size of wild-type littermates at birth. The impact of the mutation was exerted during the early embryonic period prior to organogenesis, resulting in proportional dwarfism. PAPPA, IGF2 and IGFBP4 transcripts co-localized in wild-type embryos, and expression of IGF2 and IGFBP4 mRNA was not altered in PAPPA-deficient embryos. However,IGFBP4 proteolytic activity was completely lacking in fibroblasts derived from PAPPA-deficient embryos, and IGFBP4 effectively inhibited IGF-stimulated mitogenesis in these cells. These results provide the first direct evidence that PAPPA is an essential growth regulatory factor in vivo, and suggest a novel mechanism for regulated IGF bioavailability during early fetal development.