Transforming growth factor-beta (TGF-beta) is secreted by most cells as a biologically inactive complex, called the large latent TGF-beta complex. The complex is comprised of latent TGF-beta binding protein (LTBP) and latent TGF-beta, which is mature TGF-beta associated noncovalently with its amino-terminal propeptides. LTBP is disulfide-linked to the amino-terminal propeptide of latent TGF-beta. Active TGF-beta is generated by release of TGF-beta from the complex. Generation of active TGF-beta by macrophages has been reported, but the activation mechanism has not been described. Latent TGF-beta activation by macrophages was characterized using serum-free cultures of resident and thioglycollate-elicited murine peritoneal macrophages that were either unstimulated or LPS-stimulated in vitro. Serum-free conditioned medium was assayed for TGF-beta using a quantitative luciferase-based bioassay. LPS-stimulated thioglycollate-elicited macrophages activated endogenous latent TGF-beta, whereas non-LPS-stimulated thioglycollate-elicited and resident macrophages generated undetectable levels of TGF-beta. Latent TGF-beta activation required plasmin and urokinase (uPA), uPA binding to the uPA receptor, interaction with the cation-independent mannose 6-phosphate/insulin-like growth factor type II receptor, tissue type II transglutaminase, and LTBP. A time-course analysis of latent TGF-beta activation revealed that maximal TGF-beta was generated after 24 h (25 +/- 5 pg/ml). TGF-beta formed within the initial 24 h modulated the plasminogen activator system by down-regulating uPA, suggesting that TGF-beta temporally modulated its own formation by regulating cell-associated uPA.