Thrombopoietin and its cognate receptor c-Mpl are the primary regulators of megakaryopoiesis and platelet production. They also play an important role in the maintenance of hematopoietic stem cells. Here, we have analyzed the function of a truncated Mpl receptor isoform (Mpl-tr), which results from alternative splicing. The mpl-tr variant is the only alternate mpl isoform conserved between mouse and humans, suggesting a relevant function in regulating Mpl signaling. Despite the presence of a signal peptide and the lack of a transmembrane domain, Mpl-tr is retained intracellularly. Our results provide evidence that Mpl-tr exerts a dominant-negative effect on thrombopoietin-dependent cell proliferation and survival. We demonstrate that this inhibitory effect is due to down-regulation of the full-length Mpl protein. The C terminus of Mpl-tr, consisting of 30 amino acids of unique sequence, is essential for the suppression of thrombopoietin-dependent proliferation and Mpl protein down-regulation. Cathepsin inhibitor-1 (CATI-1), an inhibitor of cathepsin-like cysteine proteases, counteracts the effect of Mpl-tr on Mpl protein expression, suggesting that Mpl-tr targets Mpl for lysosomal degradation. Together, these data suggest a new paradigm for the regulation of cytokine receptor expression and function through a proteolytic process directed by a truncated isoform of the same receptor.