The identification of soluble fibroblast growth factor (FGF) receptors in blood and the extracellular matrix has led to the prediction that these proteins modulate the diverse biological activities of the FGF family of ligands in vivo. A recent structural characterization of the soluble FGF receptors revealed that they are primarily generated by proteolytic cleavage of the FGFR-1 ectodomain. Efforts to examine their biological properties are now focused on understanding the functional consequences of FGFR-1 ectodomain shedding and how the shedding event is regulated. We have purified an FGFR-1 ectodomain that is constitutively cleaved from the full-length FGFR-1(IIIc) receptor and released into conditioned media. This shed receptor binds FGF-2; inhibits FGF-2-induced cellular proliferation; and competes with high affinity, cell surface FGF receptors for ligand binding. FGFR-1 ectodomain shedding downregulates the number of high affinity receptors from the cell surface. The shedding mechanism is regulated by ligand binding and by activators of PKC, and the two signaling pathways appear to be independent of each other. Deletions and substitutions at the proposed cleavage site of FGFR-1 do not prevent ectodomain shedding. Broad spectrum inhibitors of matrix metalloproteases decrease FGFR-1 ectodomain shedding, suggesting that the enzyme responsible for constitutive, ligand-activated, and protein kinase C-activated shedding is a matrix metalloprotease. In summary, shedding of the FGFR-1 ectodomain is a highly regulated event, sharing many features with a common system that governs the release of diverse membrane proteins from the cell surface. Most importantly, the FGFR ectodomains are biologically active after shedding and are capable of functioning as inhibitors of FGF-2.