The binding of growth factors to the extracellular matrix (ECM) may be a key pathway for regulation of their activity. We have shown that a major mechanism for storage of transforming growth factor-beta (TGF-beta) in bone ECM is via its association with latent TGF-beta-binding protein-1 (LTBP1). Although proteolytic cleavage of LTBP1 has been reported, it remains unclear whether this represents a physiological mechanism for release of matrix-bound TGF-beta. Here we examined the role of LTBP1 in cell-mediated release of TGF-beta from bone ECM. We first characterized the soluble and ECM-bound forms of latent TGF-beta produced by primary osteoblasts. Next, we examined release of ECM-bound TGF-beta by bone resorbing cells. Isolated avian osteoclasts and rabbit bone marrow-derived osteoclasts released bone matrix-bound TGF-beta via LTBP1 cleavage. 1,25-Dihydroxyvitamin D3 enhanced LTBP1 cleavage, resulting in release of 90% of the ECM-bound LTBP1. In contrast, osteoblasts failed to cleave LTBP1 or release TGF-beta from bone ECM. Cleavage of LTBP1 by avian osteoclasts was inhibited by serine protease and metalloproteinase (MMP) inhibitors. Studies using purified proteases showed that plasmin, elastase, MMP2, and MMP9 were able to cleave LTBP1 to produce 125-165-kDa fragments. These studies identify LTBP1 as a novel substrate for MMPs and provide the first demonstration that LTBP1 proteolysis may be a physiological mechanism for release of TGF-beta from ECM-bound stores, potentially the first step in the pathway by which matrix-bound TGF-beta is rendered active.