Hepsin is a transmembrane serine protease implicated in many biological processes, including hepatocyte growth, urinary protein secretion, auditory nerve development, and cancer metastasis. Zymogen activation is critical for hepsin function. To date, how hepsin is activated and regulated in cells remains an enigma. In this study, we conducted site-directed mutagenesis, cell expression, plasma membrane protein labeling, trypsin digestion, Western blotting, and flow cytometry experiments in human hepatoma HepG2 cells, where hepsin was originally discovered, and SMMC-7721 cells. Our results show that hepsin is activated by autocatalysis on the cell surface but not intracellularly. Moreover, we show that hepsin undergoes ectodomain shedding. In the conditioned medium from HepG2 and SMMC-7721 cells, we detected a soluble fragment comprising nearly the entire extracellular region of hepsin. By testing protease inhibitors, gene knockdown, and site-directed mutagenesis, we identified calpain-1 as a primary protease that acted extracellularly to cleave Tyr52 in the juxtamembrane space of hepsin. These results provide new insights into the biochemical and cellular mechanisms that regulate hepsin expression and activity.