EGF precursor (proEGF) is a member of the family of membrane-anchored EGF-like growth factors that bind with high affinity to the epidermal growth factor receptor (EGFR). In contrast to human transforming growth factor-alpha precursor (proTGFalpha), which is sorted basolaterally in Madin-Darby canine kidney (MDCK) cells (Dempsey, P., and R. Coffey, 1994. J. Biol. Chem. 269:16878-16889), we now demonstrate that human proEGF overexpressed in MDCK cells is found predominantly at the apical membrane domain under steady-state conditions. Nascent proEGF (185 kD) is not sorted but is delivered equally to the apical and basolateral membranes, where it is proteolytically cleaved within its ectodomain to release a soluble 170-kD EGF form into the medium. Unlike the fate of TGFalpha in MDCK cells, the soluble 170-kD EGF species accumulates in the medium, does not interact with the EGFR, and is not processed to the mature 6-kD peptide. We show that the rate of ectodomain cleavage of 185-kD proEGF is fourfold greater at the basolateral surface than at the apical surface and is sensitive to a metalloprotease inhibitor, batimastat. Batimastat dramatically inhibited the release of soluble 170-kD EGF into the apical and basal medium by 7 and 60%, respectively, and caused a concordant increase in the expression of 185-kD proEGF at the apical and basolateral cell surfaces of 150 and 280%, respectively. We propose that preferential ectodomain cleavage at the basolateral surface contributes to apical domain localization of 185-kD proEGF in MDCK cells, and this provides a novel mechanism to achieve a polarized distribution of cell surface membrane proteins under steady-state conditions. In addition, differences in disposition of EGF and TGFalpha in polarized epithelial cells offer a new conceptual framework to consider the actions of these polypeptide growth factors.