The transforming growth factor-beta (TGF-beta) binding site in betaglycan, the type III TGF-beta receptor, has been variously assigned to the C-terminal half and N-terminal one-third of the extracellular domain. In this study, we show that there are at least two TGF-beta-binding sites in betaglycan. Bacterially expressed fragments bg 1,2 and bg3, which represent the N-terminal two-thirds and C-terminal one-third of betaglycan extracellular domain, both competed for the binding of 125I-TGF-beta to mink lung epithelial cells. 125I-bg1,2 bound to immobilized TGF-beta with an affinity about 4-fold higher than bg3 had. Both bg3 and bg1,2 enhanced the bioactivity of TGF-beta. The whole ectodomain of betaglycan was more active than either bg3 or bg1,2 in the assays. The binding of 125I-bg3 to TGF-beta was inhibited by bg1,2 and vice versa. The binding of 125I-bg3 and 125I-bg1,2 to TGF-beta was also inhibited by the small decorin family of proteoglycans. These results indicate that there are at least two binding sites for TGF-beta in betaglycan and that these sites recognize the same or overlapping sites in TGF-beta.