Transforming growth factor‐β1 (TGF‐β) is secreted in a latent form consisting of mature TGF‐β noncovalently associated with its amino‐terminal propeptide, which is called latency associated peptide (LAP). Biological activity depends upon the release of TGF‐β from the latent complex following extracellular activation, which appears to be the key regulatory mechanism controlling TGF‐β action. We have identified two events associated with latent TGF‐β (LTGF‐β) activation in vivo: increased immunoreactivity of certain antibodies that specifically detect TGF‐β concomitant with decreased immunoreactivity of antibodies to LAP. Macrophages stimulated in vitro with interferon‐γ and lipopolysaccharide reportedly activate LTGF‐β via cell membrane–bound protease activity. We show through dual immunostaining of paraformaldehyde‐fixed macrophages that such physiological TGF‐β activation is accompanied by a loss of LAP immunoreactivity with concomitant revelation of TGF‐β epitopes. The induction of TGF‐β immunoreactivity colocalized with immunoreactive betaglycan/RIII in activated macrophages, suggesting that LTGF‐β activation occurs on the cell surface. Confocal microscopy of metabolically active macrophages incubated with antibodies to TGF‐β and betaglycan/RIII prior to fixation supported the localization of activation to the cell surface. The ability to specifically detect and localize LTGF‐β activation provides an important tool for studies of its regulation. J. Cell. Physiol. 178:275–283, 1999. © 1999 Wiley‐Liss, Inc.