Membrane-type 1 matrix metalloproteinase (MT1-MMP) is a membrane-bound MMP that is highly expressed in cells with invading capacity, including fibroblasts and invasive cancer cells. However, pathways of MT1-MMP up-regulation are not clearly understood. A potential physiological stimulus for MT1-MMP expression is fibrillar collagen, and it has been shown that it up-regulates both MT1-MMP gene and functions in various cell types. However, the mechanisms of collagen-mediated MT1-MMP activation and its physiological relevance are not known. In this study, we identified discoidin domain receptor 2 (DDR2) as a crucial receptor that mediates this process in human fibroblasts. Knocking down DDR2, but not the β1 integrin subunit, a common subunit for all collagen-binding integrins, inhibited the collagen-induced MT1-MMP-dependent activation of pro-MMP-2 and up-regulation of MT1-MMP at the gene and protein levels. Interestingly, DDR2 knockdown or pharmacological inhibition of DDR2 also inhibited the MT1-MMP-dependent cellular degradation of collagen film, suggesting that cell-surface collagen degradation by MT1-MMP involves DDR2-mediated collagen signaling. This DDR2-mediated mechanism is only present in non-transformed mesenchymal cells as collagen-induced MT1-MMP activation in HT1080 fibrosarcoma cells and MT1-MMP function in MDA-MB231 breast cancer cells were not affected by DDR kinase inhibition. DDR2 activation was found to be noticeably more effective when cells were stimulated by collagen without the non-helical telopeptide region compared with intact collagen fibrils. Furthermore, DDR2-dependent MT1-MMP activation by cartilage was found to be more efficient when the tissue was partially damaged. These data suggest that DDR2 is a microenvironment sensor that regulates fibroblast migration in a collagen-rich environment.