Tumor necrosis factor (TNF) is produced as a membrane-bound, 26-kDa proform from which the mature, 17-kDa TNF subunit is released by proteolytic cleavage. In order to compare the biological activity of membrane-bound versus soluble TNF, mutational analysis of potential cleavage sites in murine TNF was carried out. The biological activity was assessed after transfection in L929 cells. Deletion of the first nine codons of the mature part of the murine TNF gene still led to the production of secretable TNF, indicating alternative cleavage sites separate from the -1/+1 junction. However, an additional deletion of 3 amino acids, generating TNF delta 1-12, resulted in a membrane-bound form of TNF. Site-directed mutagenesis revealed Lys11 as the critical residue for alternative cleavage. Mutation of this residue to Glu in a TNF delta 1-9 mutant gave rise to uncleavable, membrane-bound TNF with biological activities similar to wild-type TNF. Induction of apoptosis, proliferation, or cytokine production by triggering of either 55-kDa or 75-kDa TNF receptors in appropriate cell lines occurred efficiently both with soluble and with membrane-bound TNF. The latter was, however, less active in the cytotoxic assays on U937 cells in which the 75-kDa TNF receptor is not signaling, but contributes to maximal TNF activity by ligand passing. This indicates that membrane-bound TNF cannot be passed from the 75-kDa to the 55-kDa TNF receptor.