Proteolytic cleavage of TNF receptor 1 (TNFR1) generates soluble receptors that regulate TNF bioactivity. We hypothesized that the mechanism of TNFR1 shedding might involve interactions with regulatory ectoproteins. Using a yeast two-hybrid approach, we identified ARTS-1 (aminopeptidase regulator of TNFR1 shedding) as a type II integral membrane protein that binds to the TNFR1 extracellular domain. In vivo binding of membrane-associated ARTS-1 to TNFR1 was confirmed by coimmunoprecipitation experiments using human pulmonary epithelial and umbilical vein endothelial cells. A direct relationship exists between membrane-associated ARTS-1 protein levels and concordant changes in TNFR1 shedding. Cells overexpressing ARTS-1 demonstrated increased TNFR1 shedding and decreased membrane-associated TNFR1, while cells expressing antisense ARTS-1 mRNA demonstrated decreased membrane-associated ARTS-1, decreased TNFR1 shedding, and increased membrane-associated TNFR1. ARTS-1 neither bound to TNFR2 nor altered its shedding, suggesting specificity for TNFR1. Although a recombinant ARTS-1 protein demonstrated selective aminopeptidase activity toward nonpolar amino acids, multiple lines of negative evidence suggest that ARTS-1 does not possess TNFR1 sheddase activity. These data indicate that ARTS-1 is a multifunctional ectoprotein capable of binding to and promoting TNFR1 shedding. We propose that formation of a TNFR1-ARTS-1 molecular complex represents a novel mechanism by which TNFR1 shedding is regulated.