Collagen XXIII belongs to the class of type II orientated transmembrane collagens. A common feature of these proteins is the presence of two forms of the molecule: a membrane-bound form and a shed form. Here we demonstrate that, in mouse lung, collagen XXIII is found predominantly as the full-length form, whereas in brain, it is present mostly as the shed form, suggesting that shedding is tissue-specific and tissue-regulated. To analyze the shedding process of collagen XXIII, a cell culture model was established. Mutations introduced into two putative proprotein convertase cleavage sites showed that altering the second cleavage site inactivated much of the shedding. This supports the idea that furin, a major physiological protease, is predominantly responsible for shedding. Furthermore, our studies indicate that collagen XXIII is localized in lipid rafts in the plasma membrane and that ectodomain shedding is altered by a cholesterol-dependent mechanism. Moreover, newly synthesized collagen XXIII either is cleaved inside the Golgi/trans-Golgi network or reaches the cell surface, where it becomes protected from processing by being localized in lipid rafts. These mechanisms allow the cell to regulate the amounts of cell surface-bound and secreted collagen XXIII.The group of collagenous transmembrane proteins consists of type XIII, XVII, XXIII, and XXV collagens and several related proteins such as ectodysplasin A, the class A macrophage scavenger receptors, the MARCO1 receptor, and the group of colmedins. These are type II transmembrane proteins that contain at least one collagenous triple helical domain (summarized in Ref. 1). Collagens XIII, XXIII, and XXV are of unknown function and consist of three collagenous domains that are flanked and separated by noncollagenous domains. Whereas collagen XVII is more distantly related, types XIII, XVII, XXIII, and XXV all exist in two forms: a transmembrane form and a shed ectodomain form. Whereas collagen XVII is shed from the surface by TACE (tumor necrosis factor-␣-converting enzyme), a member of the ADAM (a disintegrin and metalloproteinase) family (2), mutation analysis of collagens XIII and XXV demonstrated that the protease furin produces the shed forms (3, 4). Initial cell culture studies suggested an involvement of furin either directly or indirectly in the cleavage of collagen XXIII as well (5). Furthermore, the co-existence in tissues of both the transmembrane and shed forms of collagen XXIII was suggested from immunoblot analyses (6).The shedding of an ectodomain amplifies the possible functional role of a protein because different forms, i.e. full-length cell surface-bound or soluble, likely have different biological activity. The "sheddase" furin is a member of a proprotein convertase family. Among other functions, furin participates in the maturation and activation of proteins at the cell surface, endowing the cell with the ability to change its functional behavior (7-9). Moreover, conversion by proteolytic cleavage can be tightly regulated (10, 11). Furin-de...