Mechanisms that sense and regulate epithelial morphogenesis, integrity, and homeostasis are incompletely understood. Protease-activated receptor 2 (Par2), the Par2-activating membrane-tethered protease matriptase, and its inhibitor, hepatocyte activator inhibitor 1 (Hai1), are coexpressed in most epithelia and may make up a local signaling system that regulates epithelial behavior. We explored the role of Par2b in matriptase-dependent skin abnormalities in Hai1a-deficient zebrafish embryos. We show an unexpected role for Par2b in regulation of epithelial apical cell extrusion, roles in regulating proliferation that were opposite in distinct but adjacent epithelial monolayers, and roles in regulating cell-cell junctions, mobility, survival, and expression of genes involved in tissue remodeling and inflammation. The epidermal growth factor receptor Erbb2 and matrix metalloproteinases, the latter induced by Par2b, may contribute to some matriptase- and Par2b-dependent phenotypes and be permissive for others. Our results suggest that local protease-activated receptor signaling can coordinate cell behaviors known to contribute to epithelial morphogenesis and homeostasis.