Like other members of the epidermal growth factor family, heparin-binding epidermal growth factor-like growth factor (HB-EGF) is synthesized as a transmembrane protein that can be shed enzymatically to release a soluble growth factor. Ectodomain shedding is essential to the biological functions of HB-EGF and is strictly regulated. However, the mechanism that induces the shedding remains unclear. We have recently identified nardilysin (N-arginine dibasic convertase (NRDc)), a metalloendopeptidase of the M16 family, as a protein that specifically binds HB-EGF (Nishi, E., Prat, A., Hospital, V., Elenius, K., and Klagsbrun, M. (2001) EMBO J. 20, 3342-3350). Here, we show that NRDc enhances ectodomain shedding of HB-EGF. When expressed in cells, NRDc enhanced the shedding in cooperation with tumor necrosis factor-alpha-converting enzyme (TACE; ADAM17). NRDc formed a complex with TACE, a process promoted by phorbol esters, general activators of ectodomain shedding. NRDc enhanced TACE-induced HB-EGF cleavage in a peptide cleavage assay, indicating that the interaction with NRDc potentiates the catalytic activity of TACE. The metalloendopeptidase activity of NRDc was not required for the enhancement of HB-EGF shedding. Notably, a reduction in the expression of NRDc caused by RNA interference was accompanied by a decrease in ectodomain shedding of HB-EGF. These results indicate the essential role of NRDc in HB-EGF ectodomain shedding and reveal how the shedding is regulated by the modulation of sheddase activity.