The heregulin receptor tyrosine kinase ErbB-4 is constitutively cleaved, in the presence or absence of ligand, by an exofacial proteolytic activity producing a membrane-anchored cytoplasmic domain fragment of 80 kD. Based on selective sensitivity to inhibitors, the proteolytic activity is identified as that of a metalloprotease. The 80-kD product is tyrosine phosphorylated and retains tyrosine kinase activity. Importantly, the levels of this fragment are controlled by proteasome function. When proteasome activity is inhibited for 6 h, the kinase-active 80-kD ErbB-4 fragment accumulates to a level equivalent to 60% of the initial amount of native ErbB-4 (approximately 10(6) receptors per cell). Hence, proteasome activity is essential to prevent the accumulation of a significant level of ligand-independent, active ErbB-4 tyrosine kinase generated by metalloprotease activity. Proteasome activity, however, does not act on the native ErbB-4 receptor before the metalloprotease-mediated cleavage, as no ErbB-4 fragments accumulate when metalloprotease activity is blocked. Although no ubiquitination of the native ErbB-4 is detected, the 80-kD fragment is polyubiquitinated. The data, therefore, describe a unique pathway for the processing of growth factor receptors, which involves the sequential function of an exofacial metalloprotease and the cytoplasmic proteasome.