E-cadherin controls a wide array of cellular behaviors, including cell-cell adhesion, differentiation, and tissue development. We show here that E-cadherin is cleaved specifically by ADAM (a disintegrin and metalloprotease) 10 in its ectodomain. Analysis of ADAM10-deficient fibroblasts, inhibitor studies, and RNA interference-mediated down-regulation of ADAM10 demonstrated that ADAM10 is responsible not only for the constitutive shedding but also for the regulated shedding of this adhesion molecule in fibroblasts and keratinocytes. ADAM10-mediated E-cadherin shedding affects epithelial cell-cell adhesion as well as cell migration. Furthermore, the shedding of E-cadherin by ADAM10 modulates the beta-catenin subcellular localization and downstream signaling. ADAM10 overexpression in epithelial cells increased the expression of the beta-catenin downstream gene cyclin D1 dose-dependently and enhanced cell proliferation. In ADAM10-deficient mouse embryos, the C-terminal E-cadherin fragment is not generated, and the full-length protein accumulates, highlighting the in vivo relevance for ADAM10 in E-cadherin shedding. Our data strongly suggest that this protease constitutes a major regulatory element for the multiple functions of E-cadherin under physiological as well as pathological conditions.