IL-10 is a potent anti-inflammatory molecule, which regulates TNF-alpha at multiple levels. We investigated whether IL-10 also modulated the activity of the TNF-alpha-converting enzyme (TACE). Using an ex vivo fluorogenic assay we observed that LPS rapidly induced TACE activity in monocytes coinciding with release of soluble TNF-alpha. In the presence of IL-10, TNF-alpha production and activation of surface TACE was significantly inhibited. Paradoxically, both LPS with or without IL-10 led to accumulation of surface TACE (albeit catalytically inactive) over a 24 h period. We investigated whether this was mediated through induction of endogenous tissue inhibitor metalloproteinase-3 (TIMP-3). We found that the inhibition of TACE activity at 2 h by IL-10 was not TIMP-3 dependent but that the late accumulation of surface TACE was prevented with TIMP-3 antibodies. Furthermore, induction of endogenous TIMP-3 was observed by western blotting in both LPS- and in LPS with IL-10-treated monocytes from 6 to 8 h of culture. These results indicate that IL-10 further regulates TNF-alpha by modulating TACE activation at early time points and by contributing to the induction of TIMP-3, the natural inhibitor of active TACE, at later time points. These observations add to our understanding of inflammation and the importance of homeostatic regulators of these events.