The culture of bovine synovial or capsular tissue generated proteoglycan-degrading activity. When these tissues were incubated with living or dead bovine articular cartilage significantly more proteoglycan-degrading activity was revealed. The activity was present in a soluble form and required protein synthesis for its generation. The conditioned medium did not contain matrixin activity, although experiments with proteinase inhibitors suggested that the activity was due to a metalloproteinase. Western blotting of the aggrecan fragments suggested cleavage of aggrecan within the interglobular domain at the "aggrecanase" site, but not at the major matrixin site. N-terminal sequencing confirmed cleavage of aggrecan at a number of glutamyl bonds, including the aggrecanase site in the interglobular domain. We conclude that cultured synovial or capsular tissue produces soluble aggrecanase and an enzyme which releases aggrecanase from cartilage, possibly by cleavage of a chondrocyte membrane-bound form of aggrecanase.