The transforming growth factor-β (TGF-β) superfamily has essential roles in lung development, regulating cell proliferation, branching morphogenesis, differentiation and apoptosis. Although most lung cancers become resistant to the tumor suppressor effects of TGF-β, and loss or mutation of one of the components of the TGF-β signaling pathway, including TβRII, Smad2 and Smad4 have been reported, mutations are not common in non-small cell lung cancer (NSCLC). Here we demonstrate that the TGF-β superfamily co-receptor, the type III TGF-β receptor (TβRIII or betaglycan) is lost in the majority of NSCLC specimens at the mRNA and protein levels, with loss correlating with increased tumor grade and disease progression. Loss of heterozygosity at the TGFBR3 genomic locus occurs in 38.5% of NSCLC specimens and correlates with decreased TβRIII expression, suggesting loss of heterozygosity as one mechanism for TβRIII loss. In the H460 cell model of NSCLC, restoring TβRIII expression decreased colony formation in soft agar. In the A549 cell model of NSCLC, restoring TβRIII expression significantly decreased cellular migration and invasion through Matrigel, in the presence and absence of TGF-β1, and decreased tumorigenicity in vivo. In a reciprocal manner, shRNA-mediated silencing of endogenous TβRIII expression enhanced invasion through Matrigel. Mechanistically, TβRIII functions, at least in part, through undergoing ectodomain shedding, generating soluble TβRIII, which is able to inhibit cellular invasiveness. Taken together, these results support TβRIII as a novel tumor suppressor gene that is commonly lost in NSCLC resulting in a functional increase in cellular migration, invasion and anchorage-independent growth of lung cancer cells.