Transforming growth factor-alpha (TGF-alpha) is a mitogenic peptide produced by tumor cells and by virally and chemically transformed cells in culture. TGF-alpha is almost certainly derived from its precursor protein (pro-TGF-alpha) by limited proteolysis, but the physiologically relevant processing enzyme(s) is(are) unknown. We now report that oncogenically transformed rat liver epithelial cells (known to secrete TGF-alpha) and Schwann cells in culture transfected with SV40 T-antigen (which are now reported to express mRNA encoding pro-TGF-alpha) contain membrane associated, neutral pH, serine proteinases which are elastase-like in their substrate specificity, but elastase is not known to be associated with these cell types. In both cell types, the enzyme is associated with a subcellular fraction enriched for microsomes and plasma membranes. Furthermore, the enzyme appears to be specifically induced 4-fold in the transformed epithelial cells as compared with the level of enzyme present in the nontransformed parental cells. The enzymes have been purified approximately 20,000-fold to near homogeneity (50-60 units/mg) and are virtually identical with regard to their molecular weights (38,000) and other physiochemical properties. Results obtained with numerous synthetic peptide substrates show the enzymes prefer nonpolar residues such as Ala and Val in the P1 and P2 positions, but promiscuity of cleavage specificity observed with long-chain peptide substrates is attributed to the absence of structure in these peptides. Thus, although these enzymes may be involved in processing pro-TGF-alpha at the plasma membrane of the cell, it is just as likely that these enzymes play other physiological roles in the parental and/or transformed cells and that there is no specific endoproteolytic processing enzyme of pro-TGF-alpha.