Tissue inhibitor of metalloproteinase-3 (TIMP-3) is a dual inhibitor of the matrix metalloproteinases (MMPs) and some adamalysins, two families of extracellular and cell surface metalloproteinases that function in extracellular matrix turnover and the shedding of cell surface proteins. The mechanism of inhibition of MMPs by TIMPs has been well characterized, and since the catalytic domains of MMPs and adamalysins are homologous, it was assumed that the interaction of TIMP-3 with adamalysins is closely similar. Here we report that the inhibition of the extracellular region of ADAM-17 (tumor necrosis factor alpha-converting enzyme (TACE)) by the inhibitory domain of TIMP-3 (N-TIMP-3) shows positive cooperativity. Also, mutations in the core of the MMP interaction surface of N-TIMP-3 dramatically reduce the binding affinity for MMPs but have little effect on the inhibitory activity for TACE. These results suggest that the mechanism of inhibition of ADAM-17 by TIMP-3 may be distinct from that for MMPs. The mutant proteins are also effective inhibitors of tumor necrosis factor alpha (TNF-alpha) release from phorbol ester-stimulated cells, indicating that they provide a lead for engineering TACE-specific inhibitors that may reduce side effects arising from MMP inhibition and are possibly useful for treatment of diseases associated with excessive TNF-alpha levels such as rheumatoid arthritis.