The orphan receptor tyrosine kinase Tie-1 is expressed predominantly in endothelial cells. Expression of this receptor is increased in physiologic angiogenesis and pathologic situations including tumor growth and arteriovenous malformations. Tie-1 is essential for vascular development where it acts in later stages of angiogenesis to suppress endothelial activation and stabilize the newly formed vessel. Stimulation of protein kinase C in endothelial cells results in endoproteolytic cleavage of Tie-1, releasing the extracellular ligand-binding domain of the receptor. We show that this is mediated by a metalloprotease. Immunoprecipitation and immunoblotting of lysates prepared from human placentas confirm that Tie-1 truncation occurs in vivo. We propose cleavage of this receptor may be a mechanism for inducing vessel destabilization by preventing ligand-activated signaling through Tie-1. Using an antibody that recognizes the carboxy terminus of the intracellular domain, we show that the Tie-1 endodomain formed on cleavage persists as a cell-associated fragment for several hours. Subcellular fractionation reveals this tyrosine kinase containing receptor fragment to be localized in the membrane fraction of the cell. Immunoprecipitation with antibodies recognizing phosphotyrosine demonstrates that cleavage of Tie-1 stimulates association of newly generated endodomain with cellular phosphoproteins. Furthermore, there was a marked induction of tyrosine phosphorylation of several proteins after PMA-induced endodomain generation. These data indicate that ectodomain cleavage may be a mechanism for down-regulating ligand-induced signaling through Tie-1 while activating an alternative ligand-independent signaling pathway in endothelial cells. Ectodomain cleavage occurs in some other receptor tyrosine kinases. We suggest that rather than solely being a means of down-regulating receptor activity, ectodomain cleavage may be a novel way for a receptor to switch between two alternative signaling pathways.