Brain angiogenesis inhibitor 1 (BAI1) is a transmembrane protein with unknown function expressed primarily in normal but not tumoral brain. The finding of thrombospondin type 1 repeats in its extracellular domain suggested an antiangiogenic function, but the mechanisms by which a transmembrane receptor could inhibit angiogenesis remained unexplained. Here we demonstrate that BAI1 is proteolytically cleaved at a conserved G-protein-coupled receptor proteolytic cleavage site (GPS), releasing its 120 kDa extracellular domain. We named this secreted fragment Vasculostatin as it inhibited migration of endothelial cells in vitro and dramatically reduced in vivo angiogenesis. Both constitutive and doxycycline-induced expression of Vasculostatin elicited dose-dependent suppression of tumor growth and vascular density in mice, implicating Vasculostatin in the regulation of vascular homeostasis and tumor prevention. Generation of a soluble antiangiogenic factor by cleavage of a pre-existing transmembrane protein represents a novel mechanism for regulating vascular homeostasis and preventing tumorigenesis. Modulation of this cleavage or delivery of Vasculostatin may constitute novel treatment modalities for cancer and other diseases of aberrant angiogenesis, especially in the brain.