Transforming growth factor-beta (TGFβ) is a multifunctional cytokine with a well-established role in mammary gland development and both oncogenic and tumor-suppressive functions. The extracellular matrix (ECM) indirectly regulates TGFβ activity by acting as a storage compartment of latent-TGFβ, but how TGFβ is released from the ECM via proteolytic mechanisms remains largely unknown. In this study, we demonstrate that hepsin, a type II transmembrane protease overexpressed in 70% of breast tumors, promotes canonical TGFβ signaling through the release of latent-TGFβ from the ECM storage compartment. Mammary glands in hepsin CRISPR knockout mice showed reduced TGFβ signaling and increased epithelial branching, accompanied by increased levels of fibronectin and latent-TGFβ1, while overexpression of hepsin in mammary tumors increased TGFβ signaling. Cell-free and cell-based experiments showed that hepsin is capable of direct proteolytic cleavage of fibronectin but not latent-TGFβ and, importantly, that the ability of hepsin to activate TGFβ signaling is dependent on fibronectin. Altogether, this study demonstrates a role for hepsin as a regulator of the TGFβ pathway in the mammary gland via a novel mechanism involving proteolytic downmodulation of fibronectin.