Epithelial-mesenchymal transformation (EMT), the process by which epithelial cells are converted into motile, invasive mesenchymal cells, is critical to valvulogenesis. Transforming growth factor-beta3 (TGF-beta3), an established mediator of avian atrioventricular (AV) canal EMT, is secreted as a latent complex. In vitro, plasmin-mediated proteolysis has been shown to release active TGF-betas from the latent complex. Annexin II, a co-receptor for tissue plasminogen activator (tPA) and plasminogen, promotes cell-surface generation of the serine protease plasmin. Here, we show that annexin II-mediated plasmin activity regulates release of active TGF-beta3 during chick AV canal EMT. Primary embryonic endocardial-derived cells express annexin II which promotes plasminogen activation in vitro. Incubation of heart explant cultures with either alpha(2)antiplasmin (alpha(2)AP), a major physiological plasmin inhibitor, or anti-annexin II IgG, blocked EMT by approximately 80%, and 50%, respectively. Anti-annexin II IgG-mediated inhibition of EMT was overcome by the addition of recombinant TGF-beta3. Upon treatment with anti-annexin II IgG or alpha(2)AP, conditioned medium from heart explant cultures showed absence of the active fragment of TGF-beta3 by Western blot analysis and a approximately 50% decrease in TGF-beta specific bioactivity. Our results suggest that annexin II-mediated plasmin activity regulates the release of active TGF-beta during cardiac valve development in the avian heart.