We previously reported that macrophage activators such as LPS, IL-2, and IL-4 down-modulate the M-CSFR via a mechanism involving protein kinase C and phospholipase C. In this study, we showed that M-CSFR is shed from macrophage surface and identified the protease responsible for M-CSFR cleavage and down-modulation. The shedding of M-CSFR elicited by phorbol esters (tetradecanoylphorbol myristate acetate (TPA)) or LPS in murine BAC.1-2F5 macrophages was prevented by cation chelators, as well as hydroxamate-based competitive inhibitors of metalloproteases. We found that the protease cleaving M-CSFR is a transmembrane enzyme and that its expression is controlled by furin-like serine endoproteases, which selectively process transmembrane metalloproteases. M-CSFR down-modulation was inhibited by treating cells in vivo, before TPA stimulation, with an Ab raised against the extracellular, catalytic domain of proTNF-converting enzyme (TACE). TACE expression was confirmed in BAC.1-2F5 cells and found inhibited after blocking furin-dependent processing. Using TACE-negative murine Dexter-ras-myc cell monocytes, we found that in these cells TPA is unable to down-modulate M-CSFR expression. These data indicated that TACE is required for the TPA-induced M-CSFR cleavage. The possibility that the cleavage is indirectly driven by TACE via the release of TNF was excluded by treating cells in vivo with anti-TNF Ab. Thus, we concluded that TACE is the protease responsible for M-CSFR shedding and down-modulation in mononuclear phagocytes undergoing activation. The possible physiological relevance of this mechanism is discussed.