MMP-3, a stromal enzyme upregulated in many breast tumors, induces epithelial-mesenchymal transition (EMT) and genomic instability in mammary epithelial cells. This study identifies a molecular pathway by which MMP-3 exerts these effects: exposure of mouse mammary epithelial cells to MMP-3 induces an alternatively spliced form of Rac1, Rac1b, which increases reactive oxygen species (ROS). ROS stimulate the transcription factor Snail, leading to EMT and genomic instability through oxidative DNA damage. These findings reveal a previously unknown pathway in which components of the breast tumor microenvironment alter cellular structure in culture and tissue structure in vivo, leading to malignant transformation. MMP-3 induces EMT by altering the F-actin cytoskeleton, suggesting involvement of Rho GTPase family members. A highly activated splice isoform of Rac1, Rac1b, was identified in breast and colorectal tumors. MMP-3 treatment induced Rac1b expression, which was reversible. Rac1b activity was required for MMP-3-induced changes in vimentin expression and cell motility. Knockdown of Rac1b with siRNA inhibited MMP-3-induced cell motility, indicating Rac1b's role in EMT. ROS generated by MMP-3 or Rac1b cause oxidative DNA damage and genomic instability. ROS can be quenched by N-acetyl cysteine (NAC), which inhibited MMP-3-induced downregulation of epithelial cytokeratins and upregulation of mesenchymal vimentin. ROS also stimulate Snail expression, which is essential for EMT. Exogenous Snail expression induced EMT, confirming its role in the process. MMP-3 treatment led to increased ROS production, which caused DNA damage and genomic instability. This was evidenced by increased FITC-avidin nuclear staining and PALA resistance in MMP-3-treated cells. Genomic instability was further confirmed by comparative genomic hybridization, showing additional genomic amplifications and deletions in MMP-3-treated cells. The study shows that Rac1b, an alternatively spliced form of Rac1, is a key event in MMP-3-induced malignant transformation. Rac1b is unique in its activation and its role in EMT and genomic instability. The findings suggest that the tumor microenvironment, through MMP-3 and Rac1b, can directly stimulate malignant transformation in normal cells. These results highlight the importance of the tumor microenvironment in cancer progression and suggest that similar pathways may be involved in other aspects of tumor development.MMP-3, a stromal enzyme upregulated in many breast tumors, induces epithelial-mesenchymal transition (EMT) and genomic instability in mammary epithelial cells. This study identifies a molecular pathway by which MMP-3 exerts these effects: exposure of mouse mammary epithelial cells to MMP-3 induces an alternatively spliced form of Rac1, Rac1b, which increases reactive oxygen species (ROS). ROS stimulate the transcription factor Snail, leading to EMT and genomic instability through oxidative DNA damage. These findings reveal a previously unknown pathway in which components of the breast tumor microenvironment alter cellular structure in culture and tissue structure in vivo, leading to malignant transformation. MMP-3 induces EMT by altering the F-actin cytoskeleton, suggesting involvement of Rho GTPase family members. A highly activated splice isoform of Rac1, Rac1b, was identified in breast and colorectal tumors. MMP-3 treatment induced Rac1b expression, which was reversible. Rac1b activity was required for MMP-3-induced changes in vimentin expression and cell motility. Knockdown of Rac1b with siRNA inhibited MMP-3-induced cell motility, indicating Rac1b's role in EMT. ROS generated by MMP-3 or Rac1b cause oxidative DNA damage and genomic instability. ROS can be quenched by N-acetyl cysteine (NAC), which inhibited MMP-3-induced downregulation of epithelial cytokeratins and upregulation of mesenchymal vimentin. ROS also stimulate Snail expression, which is essential for EMT. Exogenous Snail expression induced EMT, confirming its role in the process. MMP-3 treatment led to increased ROS production, which caused DNA damage and genomic instability. This was evidenced by increased FITC-avidin nuclear staining and PALA resistance in MMP-3-treated cells. Genomic instability was further confirmed by comparative genomic hybridization, showing additional genomic amplifications and deletions in MMP-3-treated cells. The study shows that Rac1b, an alternatively spliced form of Rac1, is a key event in MMP-3-induced malignant transformation. Rac1b is unique in its activation and its role in EMT and genomic instability. The findings suggest that the tumor microenvironment, through MMP-3 and Rac1b, can directly stimulate malignant transformation in normal cells. These results highlight the importance of the tumor microenvironment in cancer progression and suggest that similar pathways may be involved in other aspects of tumor development.