Peroxidasins form a highly conserved family of extracellular peroxidases of unknown cellular function. We identified the C. elegans peroxidasin PXN-2 in screens for mutants defective in embryonic morphogenesis. We find that PXN-2 is essential for specific stages of embryonic morphogenesis and muscle-epidermal attachment, and is also required postembryonically for basement membrane integrity. The peroxidase catalytic activity of PXN-2 is necessary for these developmental roles. pxn-2 mutants display aberrant ultrastructure of the extracellular matrix, suggesting a role in basement membrane consolidation. PXN-2 affects specific axon guidance choice points in the developing nervous system but is dispensable for maintenance of process positions. In adults, loss of pxn-2 function promotes regrowth of axons after injury, providing the first evidence that C. elegans extracellular matrix can play an inhibitory role in axon regeneration. Loss of function in the closely related C. elegans peroxidasin pxn-1 does not cause overt developmental defects. Unexpectedly, pxn-2 mutant phenotypes are suppressed by loss of function in pxn-1 and exacerbated by overexpression of wild-type pxn-1, indicating that PXN-1 and PXN-2 have antagonistic functions. These results demonstrate that peroxidasins play crucial roles in development and reveal a new role for peroxidasins as extracellular inhibitors of axonal regeneration.