Transforming growth factor-alpha (TGF-alpha) is synthesized and transported to the cell surface as a membrane-anchored precursor (proTGF-alpha) that is converted to the soluble form by proteolytic cleavage. ProTGF-alpha cleavage is activated in response to tumor-promoting phorbol ester or to calcium ionophore. Mechanism(s) controlling conversion of the membrane-anchored precursor to the soluble TGF-alpha are unknown, and the responsible protease has not been identified. Using the fluorogenic substrate succinyl-Ala-Ala-Ala-4-methylcoumaryl-7-amide (Suc-Ala-Ala-Ala-MCA), containing the sequence similar to the cleavage sites for proTGF-alpha processing, we identified a putative candidate proTGF-alpha-converting enzyme in the membrane fractions of Chinese hamster ovary (CHO) cells. The enzyme activity was about 5-6-fold increased by exposure of the cells with phorbol ester or with calcium ionophore. The enzyme activity was released from the cells by trypsin added exogenously; hence, the activity probably locates on the outer surface of the cell membrane. The enzyme was partially purified from membranes of phorbol ester-treated CHO cells. The molecular mass of the enzyme was estimated to be about 84 kDa by gel filtration analysis. Inhibitor profile of the enzyme, including inhibition by serine protease inhibitors and no inhibition by elastatinal, coincides with that previously reported for proTGF-alpha cleavage activity on CHO cells. These findings suggest that the enzyme is a processing protease involved in the cleavage of proTGF-alpha and that induction of proTGF-alpha conversion by phorbol ester or by calcium ionophore can be attributed to activation of the processing protease. In the cell-free reconstitution system, the membrane-bound Suc-Ala-Ala-Ala-MCA-hydrolyzing enzyme from CHO cells was also activated by phorbol ester in the presence of the soluble fraction, ATP, and vanadate. Requirement of vanadate, an inhibitor for protein phosphatases, for activation of the enzyme in this system suggests that phosphorylation-dephosphorylation probably plays a key role in the regulated cleavage of proTGF-alpha.