Transforming growth factor-beta (TGF-beta) signals through three highly conserved cell surface receptors, the type III TGF-beta receptor (T beta RIII), the type II TGF-beta receptor (T beta RII), and the type I TGF-beta receptor (T beta RI) to regulate diverse cellular processes including cell proliferation, differentiation, migration, and apoptosis. Although T beta RI and T beta RII undergo ligand-independent endocytosis by both clathrin-mediated endocytosis, resulting in enhanced signaling, and clathrin-independent endocytosis, resulting in receptor degradation, the mechanism and function of T beta RIII endocytosis is poorly understood. T beta RIII is a heparan sulfate proteoglycan with a short cytoplasmic tail that functions as a TGF-beta superfamily co-receptor, contributing to TGF-beta signaling through mechanisms yet to be fully defined. We have reported previously that T beta RIII endocytosis, mediated by a novel interaction with beta arrestin-2, results in decreased TGF-beta signaling. Here we demonstrate that T beta RIII undergoes endocytosis in a ligand and glycosaminoglycan modification-independent and cytoplasmic domain-dependent manner, with the interaction of Thr-841 in the cytoplasmic domain of T beta RIII with beta-arrestin2 enhancing T beta RIII endocytosis. T beta RIII undergoes both clathrin-mediated and clathrin-independent endocytosis. Importantly, inhibition of the clathrin-independent, lipid raft pathway, but not of the clathrin-dependent pathway, results in decreased TGF-beta1 induced Smad2 and p38 phosphorylation, supporting a specific role for clathrin-independent endocytosis of T beta RIII in regulating both Smad-dependent and Smad-independent TGF-beta signaling.