The biological activity of many cytokines is regulated by binding proteins present at the cell surface, in extracellular matrices or in soluble phase. We describe here a TGF-beta binding protein that is both an extracellular matrix and a cell surface protein. When intact extracellular matrices of HEP-G2 cells were affinity cross-linked with 125I-TGF-beta 1, two major binding components were seen: a 250-kD, proteoglycan-like molecule, presumed to be betaglycan, and a 60-kD protein. The 60-kD TGF-beta-binding protein was also present at the cell surface. It could be released from the cell surface by treating cells with high salt, heparin, chondroitin sulfate, heparitinase, or chondroitinase, indicating that it is bound to heparan sulfate and chondroitin sulfate proteoglycans. The 60-kD protein bound TGF-beta 1 with an apparent dissociation constant of 1.6 nM, and there were 30,000 binding sites per cell at the cell surface. In addition to the HEP-G2 cells and another hepatoma cell line, the 60-kD protein was also found in a human colon carcinoma (HT-29) cell line but not in rat kidney (NRK-49F) or human fibroblast (HUT-12) cell lines. The 60-kD protein could be extracted from cells containing it and transferred to the surface of previously negative cells. The 60-kD protein may serve to regulate the binding of TGF-beta to its signal transducing receptors by targeting TGF-beta to appropriate locations in the microenvironment of cells.