Transforming growth factor beta (TGF-beta) is released from cells in a latent form consisting of the mature growth factor associated with an aminoterminal propeptide and latent TGF-beta binding protein (LTBP). The endogenous activation of latent TGF-beta has been described in co-cultures of endothelial and smooth muscle cells. However, the mechanism of this activation remains unknown. Antibodies to native platelet LTBP and to a peptide fragment of LTBP inhibit in a dose-dependent manner the activation of latent TGF-beta normally observed when endothelial cells are cocultured with smooth muscle cells. Inhibition of latent TGF-beta activation was also observed when cells were co-cultured in the presence of an excess of free LTBP. These data represent the first demonstration of a function for the LTBP in the extracellular regulation of TGF-beta activity and indicate that LTBP participates in the activation of latent TGF-beta, perhaps by concentrating the latent growth factor on the cell surface where activation occurs.