Membrane-associated TNF-alpha cleavage is required to yield the 17.5-kD soluble product. This process is poorly understood in human cells, and no studies have related this process to the alveolar macrophage (AM). TNF-alpha-converting enzyme (TACE) is known to cleave TNF at the Ala-76-Val-77 site. We have evaluated the expression, regulation, and catalytic function of TACE in healthy human AMs. TACE was detected on the surface of AMs using flow cytometry. TACE protein can be upregulated by LPS (P = 0.036) and IFN-gamma. LPS-induced expression is downregulated by IL-10 (P = 0.04) and TNF-alpha. TACE regulation was observed at the mRNA level. TACE catalytic activity as assessed by cleavage of glutathione S-transferase-proTNF fusion protein correlates significantly with TACE protein expression (P = 0.04). However, cleavage and soluble TNF-alpha release by AMs was inhibited by matrix metalloproteinase and serine protease inhibitors, suggesting a role for a serine protease in this process. We confirmed the presence of proteinase-3 (PR-3) on the AM surface that was functionally capable of TNF cleavage. PR-3 mRNA expression was not found in AMs. However, we determined that PR-3 from neutrophil supernatants could bind to the AM membrane, suggesting that AM-derived PR-3 is from an exogenous source, which is important in the context of inflammation.