The polytopic membrane protein Rhomboid-1 promotes the cleavage of the membrane-anchored TGFalpha-like growth factor Spitz, allowing it to activate the Drosophila EGF receptor. Until now, the mechanism of this key signaling regulator has been obscure, but our analysis suggests that Rhomboid-1 is a novel intramembrane serine protease that directly cleaves Spitz. In accordance with the putative Rhomboid active site being in the membrane bilayer, Spitz is cleaved within its transmembrane domain, and thus is, to our knowledge, the first example of a growth factor activated by regulated intramembrane proteolysis. Rhomboid-1 is conserved throughout evolution from archaea to humans, and our results show that a human Rhomboid promotes Spitz cleavage by a similar mechanism. This growth factor activation mechanism may therefore be widespread.