During the secretory phase of the menstrual cycle, endometrial stromal cells differentiate into decidual cells, which play a crucial role in implantation and maintenance of pregnancy. In this and our previous study, we demonstrate that glycoprotein hormone free alpha-subunit potentiates progesterone-mediated decidualization of human endometrial stromal cells in vitro. Although addition of intact hCG to cultures resulted in stimulatory activity, its potency was 20-fold less than that of alpha-subunit. However, in the present study we show that decidualizing endometrial cells actively generate uncombined alpha-subunit by dissociating hCG. The amount of dissociated alpha-subunit could fully account for the stimulatory activity observed with hCG. Active dissociation of hCG was dependent on the presence of endometrial cells and did not occur in conditioned medium, excluding involvement of a stable secreted factor such as a protease. In addition to dissociated alpha- and beta-subunits, minor amounts of beta-core and alpha-fragments were detected as degradation products during active dissociation. We also observed an increase in beta-immunoreactivity that coeluted with hCG on size-exclusion gel chromatography, indicating that a portion of the still dimeric hCG may have been nicked in the dissociation process. However, using an assay with specificity for nicked hCG, we showed that dissociation of hCG was not produced from a pool of preexisting nicked hCG. These findings more firmly establish the concept that gonadotropin hormone free alpha-subunit plays a role in the regulation of human endometrial cell differentiation. In addition, identification of the various products formed by incubation of hCG with decidualizing cells yielded insight into the mechanism of hCG degradation, and may explain some activity previously ascribed to hCG.