Thyroglobulin (Tg) is the major secretory product of thyroid epithelial cells and is stored in the lumen of thyroid follicles at high concentrations. Thyroid hormone liberation is assumed to occur separately from this storage compartment within lysosomes. However, for the transfer of Tg to lysosomes, mechanisms to solubilize the luminal content must precede its endocytosis, because part of the luminal Tg occurs in a covalently cross-linked form. Here, by immunoprecipitation and immunoblotting we show that the majority of procathepsin B or L and a fraction of mature cathepsin B are released from porcine thyrocytes in vitro. Released cathepsins were detectable on the cell surface of the thyrocytes by immunocytochemistry and amounted to 27% of the total cathepsin B. Cytochemical studies revealed the proteolytic activity of cathepsin B at neutral pH on the cell surface of thyrocytes. Therefore, the possibility of extracellular proteolysis by cathepsins was investigated by incubating plasma membrane preparations, conditioned media, or lysosomes with Tg. The liberation of thyroid hormones was quantitated by RIA, and the degradation of Tg was determined by SDS-PAGE. Extracellular and plasma membrane-associated proteases rapidly mediated up to 54% of the total T4 liberation by limited proteolysis of Tg at neutral pH under conditions where cysteine proteases were reactivated. We propose that released and proteolytically active cysteine protease i.e. cathepsins B and L, provide thyrocytes with a pathway of limited extracellular proteolysis of Tg before endocytosis.