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Tumor-necrosis factor (TNF), a pleiotropic cytokine, triggers physiological and pathological responses in several organs. Here we show that deletion of the mouse gene Timp3 resulted in an increase in TNF-alpha converting enzyme activity, constitutive release of TNF and activation of TNF signaling in the liver. The increase in TNF in Timp3(-/-) mice culminated in hepatic lymphocyte infiltration and necrosis, features that are also seen in chronic active hepatitis in humans. This pathology was prevented when deletion of Timp3 was combined with Tnfrsf1a deficiency. In a liver regeneration model that requires TNF signaling, Timp3(-/-) mice succumbed to liver failure. Hepatocytes from Timp3(-/-) mice completed the cell cycle but then underwent cell death owing to sustained activation of TNF. This hepatocyte cell death was completely rescued by a neutralizing antibody to TNF. Dysregulation of TNF occurred specifically in Timp3(-/-), and not Timp1(-/-) mice. These data indicate that TIMP3 is a crucial innate negative regulator of TNF in both tissue homeostasis and tissue response to injury.