The membrane-anchored serine proteases, matriptase and prostasin, and the membrane-anchored serine protease inhibitors, hepatocyte growth factor activator inhibitor (HAI)-1 and HAI-2, are critical effectors of epithelial development and postnatal epithelial homeostasis. Matriptase and prostasin form a reciprocal zymogen activation complex that results in the formation of active matriptase and prostasin that are targets for inhibition by HAI-1 and HAI-2. Conflicting data, however, have accumulated as to the existence of auxiliary functions for both HAI-1 and HAI-2 in regulating the intracellular trafficking and activation of matriptase. In this study, we, therefore, used genetically-engineered mice to determine the effect of ablation of endogenous HAI-1 and endogenous HAI-2 on endogenous matriptase expression, subcellular localization, and activation in polarized intestinal epithelial cells. Whereas ablation of HAI-1 did not affect matriptase in epithelial cells of the small or large intestine, ablation of HAI-2 resulted in the loss of matriptase from both tissues. Gene silencing studies in intestinal Caco-2 cell monolayers revealed that this loss of cell-associated matriptase was mechanistically linked to accelerated activation and shedding of the protease caused by loss of prostasin regulation by HAI-2. Taken together, these data indicate that HAI-1 regulates the activity of activated matriptase, whereas HAI-2 has an essential role in regulating prostasin-dependent matriptase zymogen activation.