Fractalkine (CX3CL1) is an unusual member of the chemokine family that is synthesized with its chemokine domain at the end of a mucin-rich, transmembrane stalk. This membrane-bound localization allows fractalkine to function as an adhesion molecule for cells bearing its receptor, CX3CR1. In addition, fractalkine can be proteolytically released from the cell surface, generating a soluble molecule that functions as a chemoattractant similar to the other members of the chemokine family. In this study, we have examined the mechanisms that regulate the conversion between these two functionally distinct forms of fractalkine. We demonstrate that under normal conditions fractalkine is synthesized as an intracellular precursor that is rapidly transported to the cell surface where it becomes a target for metalloproteinase-dependent cleavage that causes the release of a fragment containing the majority of the fractalkine extracellular domain. We show that the cleavage of fractalkine can be markedly enhanced by stimulating cells with phorbol 12-myristate 13-acetate (PMA), and we identify tumor necrosis factor-alpha converting enzyme (TACE; ADAM17) as the protease responsible for this PMA-induced fractalkine release. In addition, we provide data showing that TACE-mediated fractalkine cleavage occurs at a site distinct from the dibasic juxtamembrane motif that had been suggested previously based on protein sequence homologies. The identification of TACE as a major protease responsible for the conversion of fractalkine from a membrane-bound adhesion molecule to a soluble chemoattractant will provide new information for understanding the physiological function of this chemokine.