Protein C is activated rapidly when thrombin binds to a specific cell surface cofactor protein, thrombomodulin. Studies were initiated to determine the influence of thrombin-thrombomodulin complex formation on the substrate specificity of thrombin. When thrombin binds to thrombomodulin, the resultant complex retains less than 1% of the fibrinogen clotting activity of free thrombin. Permanent alteration of the thrombin molecule is not involved since full clotting activity is regenerated by incubation of the complex with excess diisopropyl phosphothrombin. Unlike the activation of protein C by the thrombin-thrombomodulin complex which is dependent on Ca2+, inhibition of fibrinogen clotting activity is not dependent on the presence of divalent metal ions. Formation of the thrombin-thrombomodulin complex also inhibits thrombin activation of factor V. Despite these changes in macromolecular substate specificity, no significant change in the hydrolysis of the synthetic substrates p-tosyl-L-arginine methyl ester and N alpha-benzoyl-L-arginine ethyl ester is detected upon formation of the thrombin-thrombomodulin complex. Formation of this complex results in a slight increase in the Km (from 9.0 +/- 0.4 to 10.2 +/- 0.6 microM) and Vmax (from 230 +/- 10 to 270 +/- 10 mol/s/mol of thrombin) for the specific thrombin substrate H-D-Phe-Pip-Arg-p-nitroanilide. These studies suggest that thrombomodulin has two distinct anticoagulant functions: 1) to inhibit the ability of thrombin to clot fibrinogen and to activate factor V; and 2) to accelerate the formation of the anticoagulant, activated protein C.