ADAM17, a prominent member of the 'Disintegrin and Metalloproteinase' (ADAM) family, controls vital cellular functions through cleavage of transmembrane substrates. Here we present evidence that surface exposure of phosphatidylserine (PS) is pivotal for ADAM17 to exert sheddase activity. PS exposure is tightly coupled to substrate shedding provoked by diverse ADAM17 activators. PS dependency is demonstrated in the following: (a) in Raji cells undergoing apoptosis; (b) in mutant PSA-3 cells with manipulatable PS content; and (c) in Scott syndrome lymphocytes genetically defunct in their capacity to externalize PS in response to intracellular Ca(2+) elevation. Soluble phosphorylserine but not phosphorylcholine inhibits substrate cleavage. The isolated membrane proximal domain (MPD) of ADAM17 binds to PS but not to phosphatidylcholine liposomes. A cationic PS-binding motif is identified in this domain, replacement of which abrogates liposome-binding and renders the protease incapable of cleaving its substrates in cells. We speculate that surface-exposed PS directs the protease to its targets where it then executes its shedding function.