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The function of many transmembrane molecules can be altered by cleavage and subsequent release of their ectodomains. We have investigated ectodomain cleavage of the cell-cell adhesion and signal-transducing molecule E-cadherin. The E-cadherin ectodomain is constitutively shed from the surface of MCF-7 and MDCKts.srcC12 cells in culture. Release of the 80 kDa soluble E-cadherin fragment is stimulated by phorbol-12-myristate-13-acetate and is inhibited by overexpression of the tissue inhibitor of metalloproteinases-2. The metalloproteinases matrilysin and stromelysin-1 both cleave E-cadherin at the cell surface and release sE-CAD into the medium. The soluble E-cadherin fragment thus released inhibits E-cadherin functions in a paracrine way, as indicated by induction of invasion into collagen type I and inhibition of E-cadherin-dependent cell aggregation. Our results, therefore, suggest a novel mechanism by which metalloproteinases can influence invasion.