Disruption of the alveolar-capillary barrier is a hallmark of acute respiratory distress syndrome (ARDS) that leads to the accumulation of protein-rich edema in the alveolar space, often resulting in comparable protein concentrations in alveolar edema and plasma and causing deleterious remodeling. Patients who survive ARDS have approximately three times lower protein concentrations in the alveolar edema than nonsurvivors; thus the ability to remove excess protein from the alveolar space may be critical for a positive outcome. We have recently shown that clearance of albumin from the alveolar space is mediated by megalin, a 600-kDa transmembrane endocytic receptor and member of the low-density lipoprotein receptor superfamily. In the currents study, we investigate the molecular mechanisms by which transforming growth factor-beta (TGF-beta), a key molecule of ARDS pathogenesis, drives downregulation of megalin expression and function. TGF-beta treatment led to shedding and regulated intramembrane proteolysis of megalin at the cell surface and to a subsequent increase in intracellular megalin COOH-terminal fragment abundance resulting in transcriptional downregulation of megalin. Activity of classical protein kinase C enzymes and gamma-secretase was required for the TGF-beta-induced megalin downregulation. Furthermore, TGF-beta-induced shedding of megalin was mediated by matrix metalloproteinases (MMPs)-2, -9, and -14. Silencing of either of these MMPs stabilized megalin at the cell surface after TGF-beta treatment and restored normal albumin transport. Moreover, a direct interaction of megalin with MMP-2 and -14 was demonstrated, suggesting that these MMPs may function as novel sheddases of megalin. Further understanding of these mechanisms may lead to novel therapeutic approaches for the treatment of ARDS.