Membrane-anchored transforming growth factor alpha (proTGF alpha) belongs to a group of transmembrane proteins whose extracellular domains are selectively cleaved and released into the medium. We demonstrate that the carboxy-terminal valine in the cytoplasmic tail of proTGF alpha is required for cleavage of the growth factor ectodomain in response to various activators. This cleavage process occurs outside Golgi or lysosomal locations, affects cell surface proTGF alpha, and requires little or no membrane traffic. We propose that cleavage and release of proTGF alpha ectodomain involve a specialized proteolytic system and depend on the recognition of a simple and specific determinant located in the proTGF alpha cytoplasmic tail.