TAR DNA binding protein-43 (TDP-43) is the pathologic substrate of neuronal and glial inclusions in frontotemporal lobar degeneration with ubiquitin-positive inclusions (FTDL-U) and in amyotrophic lateral sclerosis (ALS). Mutations in the progranulin gene (PGRN) have been shown to cause familial FTLD-U. The relationship between progranulin and TDP-43 and their respective roles in neurodegeneration is unknown. We report that progranulin mediates proteolytic cleavage of TDP-43 to generate approximately 35 and approximately 25 kDa species. Suppression of PGRN expression with small interfering RNA leads to caspase-dependent accumulation of TDP-43 fragments that can be inhibited with caspase inhibitor treatment. Cells treated with staurosporine also induced caspase-dependent cleavage and redistribution of TDP-43 from its nuclear localization to cytoplasm. Altered cleavage and redistribution of TDP-43 in cell culture models are similar to findings in FTLD-U and ALS. The results suggest that abnormal metabolism of TDP-43 mediated by progranulin may play a pivotal role in neurodegeneration.