Matrix metalloproteinases (MMPs) are widely hypothesized to regulate signaling events through processing of extracellular matrix (ECM) molecules. We previously demonstrated that membrane-associated Mmp2 is expressed in exit glia and contributes to motor axon targeting. To identify possible substrates, we undertook a yeast interaction screen for Mmp2-binding proteins and identified the novel ECM protein faulty attraction (Frac). Frac encodes a multidomain extracellular protein rich in epidermal growth factor (EGF) and calcium-binding EGF domains, related to the vertebrate Fibrillin and Fibulin gene families. It is expressed in mesodermal domains flanking Mmp2-positive glia. The juxtaposition of Mmp2 and Frac proteins raises the possibility that Frac is a proteolytic target of Mmp2. Consistent with this hypothesis, levels of full-length Frac are increased in Mmp2 loss-of-function (LOF) and decreased in Mmp2 gain-of-function (GOF) embryos, indicating that Frac cleavage is Mmp2 dependent. To test whether frac is necessary for axon targeting, we characterized guidance in frac LOF mutants. Motor axons in frac LOF embryos are loosely associated and project ectopically, a phenotype essentially equivalent to that of Mmp2 LOF. The phenotypic similarity between enzyme and substrate mutants argues that Mmp2 activates Frac. In addition, Mmp2 overexpression pathfinding phenotypes depend on frac activity, indicating that Mmp2 is genetically upstream of frac. Last, overexpression experiments suggest that Frac is unlikely to have intrinsic signaling activity, raising the possibility that an Mmp2-generated Frac fragment acts as a guidance cue cofactor. Indeed, we present genetic evidence that Frac regulates a non-canonical LIM kinase 1-dependent bone morphogenetic protein signaling pathway in motoneurons necessary for axon pathfinding during embryogenesis.