CD44 is a facultative proteoglycan implicated in cell adhesion and trafficking, as well as in tumor survival and progression. We demonstrate here that CD44 heparan sulfate proteoglycan (CD44HSPG) recruits proteolytically active matrix metalloproteinase 7 (matrilysin, MMP-7) and heparin-binding epidermal growth factor precursor (pro-HB-EGF) to form a complex on the surface of tumor cell lines, postpartum uterine and lactating mammary gland epithelium, and uterine smooth muscle. The HB-EGF precursor within this complex is processed by MMP-7, and the resulting mature HB-EGF engages and activates its receptor, ErbB4, leading to, among other events, cell survival. In CD44(-/-) mice, postpartum uterine involution is accelerated and maintenance of lactation is impaired. In both uterine and mammary epithelia of these mice, MMP-7 localization is altered and pro-HB-EGF processing as well as ErbB4 activation are decreased. Our observations provide a mechanism for the assembly and function of a cell surface complex composed of CD44HSPG, MMP 7, HB-EGF, and ErbB4 that may play an important role in the regulation of physiological tissue remodeling.