Abstract The metalloprotease-dependent extracellular domain cleavage of the adhesion molecule CD44 is frequently observed in human tumors and is thought to promote metastasis. This cleavage is followed by γ-secretase-dependent release of CD44 intracellular domain (CD44-ICD), which exhibits nuclear signaling activity. Using a reversible Ret-dependent oncogenic conversion model and a restricted proteomic approach, we identified a positive correlation between the neoplastic transformation of Rat-1 cells and the expression of standard CD44. In these transformed cells, CD44 was found to undergo a sequential metalloprotease and γ-secretase cleavage, resulting in an increase in expression of CD44-ICD. We showed that this proteolytic fragment possesses a transforming activity. In support of this role, a significant and specific reduction in Ret-induced transformation of Rat-1 cells was observed following drug-mediated inhibition of γ-secretase. Taken together, these findings suggest that the shedding of CD44 may not only modulate metastasis but also affects earlier events in tumorigenesis through the release of CD44-ICD. (Cancer Res 2006; 66(7): 3681-7)