We have investigated the relevant protease activity in rat liver, which is responsible for most of the receptormediated epidermal growth factor (EGF) degradation in vivo. EGF was sequentially cleaved by endosomal proteases at a limited number of sites, which were identified by high performance liquid chromatography and mass spectrometry. EGF proteolysis is initiated by hydrolysis at the C-terminal Glu 51 -Leu 52 bond. Three additional minor cleavage sites were identified at positions Arg 48 -Trp 49 , Trp 49 -Trp 50 , and Trp 50 -Glu 51 after prolonged incubation. Using nondenaturating immunoprecipitation and cross-linking procedures, the major proteolytic activity was identified as that of the cysteine protease cathepsin-B. The effect of injected EGF on subsequent endosomal EGF receptor (EGFR) proteolysis was further evaluated by immunoblotting. Using endosomal fractions prepared from EGF-injected rats and incubated in vitro, the EGFR was lost with a time course superimposable with the loss of phosphotyrosine content. The cathepsin-B proinhibitor CA074-Me inhibited both in vivo and in vitro the endosomal degradation of the EGFR and increased the tyrosine phosphorylation states of the EGFR protein and the molecule SHC within endosomes. The data, therefore, describe a unique pathway for the endosomal processing of internalized EGF receptor complexes, which involves the sequential function of cathepsin-B through selective degradation of both the ligand and receptor.Ligand-induced desensitization and down-regulation mechanisms are important factors in the regulation of transmembrane receptors (1), and within the receptor tyrosine kinase family, significant similarities and differences have emerged in attenuation mechanisms (2, 3). One area of research into the differing signaling outcomes of the receptor tyrosine kinases involves the intraendosomal processing of the internalized ligands and how this affects tyrosine phosphorylation of the receptor tyrosine kinases as well as their substrates (1). It has been proposed that the ligand degradation state within the endosomes contributes to both the location and specificity of downstream signaling (1,4). Suggestive evidence has come from the differences in the levels of endosomal degradation of EGF 1 and transforming growth factor ␣ (TGF␣) after internalization, which coincided with altered receptor trafficking (5) and was linked to the different biopotency observed for the two ligands. Recently, using the in situ liver model system for signal transduction, we have shown an alteration in insulin receptor phosphorylation and trafficking through the endosomal pathway in response to the insulin analog H2, a genetically engineered analog that displays a reduced rate of proteolysis in endosomes as compared with authentic insulin (4). Hence, the balance between net tyrosine phosphorylation and dephosphorylation in the endosome is regulated directly or indirectly by ligand proteolysis.EGF binding to its receptor rapidly induces receptor-mediated endocytosis through clathrin-coa...