Insulin-like growth factors (IGFs) are required for normal prenatal and postnatal growth. While actions of IGFs can be modulated by a family of IGF binding proteins (IGFBPs) in vitro, these studies have identified a complicated pattern of stimulatory and inhibitory IGFBP effects, so that understanding relevant aspects of IGFBP action in vivo has been limited. Here we have produced a null mutation of one specific IGFBP, IGFBP-4, which is coexpressed with IGF-II early in development. Surprisingly, mutation of IGFBP-4, believed from in vitro studies to be exclusively inhibitory, leads to a prenatal growth deficit that is apparent from the time that the IGF-II growth deficit first arises, which strongly suggests that IGFBP-4 is required for optimal IGF-II-promoted growth during fetal development. Mice encoding a mutant IGFBP-4 protease (PAPP-A) that facilitates IGF-II release from an inactive IGF-II/IGFBP-4 complex in vitro are even smaller than IGFBP-4 mutant mice. However, the more modest IGFBP-4 growth deficit is completely restored in double IGFBP-4/PAPP-A-deficient mice. Taken together these results not only indicate that IGFBP-4 functions as a local reservoir to optimize IGF-II actions needed for normal embryogenesis, but also establish that IGFBP-4 proteolysis is required to activate most, if not all, IGF-II mediated growth-promoting activity.