Complement plays a role in activating the inflammatory response and has been implicated in the pathogenesis of some inflammatory diseases. With a view toward controlling unwanted C activation, we evaluated the C regulator, human decay accelerating factor (DAF). Three forms of recombinant DAF were purified from transfected Chinese hamster ovary cells: glycophosphatidylinositol (GPI)-linked membrane DAF (mDAF) extracted from cell membranes; spontaneously shed soluble DAF (sDAF) derived from mDAF; and a novel secreted protein (seDAF), generated by deletion of the signal for GPI attachment. We show that all three molecules inhibit both the classical and alternative pathways of C activation. The following observations indicate that mDAF extracted from Chinese hamster ovary cells reincorporates into RBC membranes via its GPI anchor: 1) cells that are preincubated with mDAF and then washed remain fully protected from C-mediated hemolysis; 2) incubation with phosphatidylinositol-specific phospholipase C abolishes this protection; and 3) sDAF and seDAF, which lack a GPI anchor, do not associate with cell membranes. mDAF is a more potent inhibitor of C-mediated hemolysis than either sDAF or seDAF, suggesting that incorporation into cell membranes greatly enhances the efficiency with which DAF inhibits C activation on the cell surface. In contrast, C activation in the fluid phase is inhibited by sDAF and seDAF, but not by mDAF, possibly due to interference by serum lipoproteins. A reversed passive Arthus reaction in guinea pigs was used to evaluate the ability of recombinant seDAF to inhibit C activation in vivo. When administered at dermal sites, seDAF reduced the severity of immune complex-mediated inflammatory reactions induced by a reversed passive Arthus reaction, as judged by both gross and histologic examination. These data indicate that seDAF may be useful as an anti-inflammatory therapeutic.