Pigment epithelium-derived factor (PEDF) has been identified as one of the most potent of endogenous negative regulators of blood vessel growth in the body. Here we report that PEDF is able to inhibit growth factor-induced angiogenesis in microvascular endothelial cells through a novel pathway requiring cleavage and intracellular translocation of the transmembrane domain of the VEGFR-1. Analysis of the subcellular distribution of VEGFR-1 revealed the appearance of an 80-kDa C-terminal domain in the cytosol of cells treated with VEGF and PEDF that correlated with a decrease of the full-length receptor in the nuclear and cytoskeletal fractions. This regulated intramembrane proteolysis is dependent on γ-secretase because inhibition of γ-secretase abolished the inhibitory effect of PEDF on VEGF-induced angiogenesis as well as VEGFR-1 cleavage. The addition of PEDF to microvascular endothelial cells significantly increases γ-secretase activity even in the absence of VEGF, showing that VEGF binding to VEGF-R1 is essential for substrate availability. This increase in activity was associated with translocation of presenilin 1 from the perinuclear region to the cell membrane. PEDF was also able to inhibit VEGF-induced phosphorylation of VEGFR-1. Taken together we have identified two novel pathways by which PEDF inhibits VEGF-induced angiogenesis: regulated intramembrane proteolysis and inhibition of phosphorylation. This confirms the importance of PEDF and VEGFR-1 in the negative regulation of angiogenesis. © 2006 by The American Society for Biochemistry and Molecular Biology, Inc.