The receptor for the type 1 insulin-like growth factor (IGF-I) has been implicated in cellular transformation and the acquisition of an invasive/metastatic phenotype in various tumors. Following ligand binding, the IGF-I receptor is internalized, and the receptor.ligand complex dissociates as the ligand is degraded by endosomal proteinases. In the present study we show that the inhibition of endosomal IGF-I-degrading enzymes in human breast and murine lung carcinoma cells by the cysteine proteinase inhibitors, E-64 and CA074-methyl ester, profoundly altered receptor trafficking and signaling. In treated cells, intracellular ligand degradation was blocked, and although the receptor and two substrates, Shc and Insulin receptor substrate, were hyperphosphorylated on tyrosine, IGF-I-induced DNA synthesis, anchorage-independent growth, and matrix metalloproteinase synthesis were inhibited. The results suggest that ligand processing by endosomal proteinases is a key step in receptor signaling and function and a potential target for therapy.