Tight control of T‐cell proliferation and effector function is essential to ensure an effective but appropriate immune response. Here, we reveal that this is controlled by the metalloprotease‐mediated cleavage of LAG‐3, a negative regulatory protein expressed by all activated T cells. We show that LAG‐3 cleavage is mediated by two transmembrane metalloproteases, ADAM10 and ADAM17, with the activity of both modulated by two distinct T‐cell receptor (TCR) signaling‐dependent mechanisms. ADAM10 mediates constitutive LAG‐3 cleavage but increases ∼12‐fold following T‐cell activation, whereas LAG‐3 shedding by ADAM17 is induced by TCR signaling in a PKCθ‐dependent manner. LAG‐3 must be cleaved from the cell surface to allow for normal T‐cell activation as noncleavable LAG‐3 mutants prevented proliferation and cytokine production. Lastly, ADAM10 knockdown reduced wild‐type but not LAG‐3^−/− T‐cell proliferation. These data demonstrate that LAG‐3 must be cleaved to allow efficient T‐cell proliferation and cytokine production and establish a novel paradigm in which T‐cell expansion and function are regulated by metalloprotease cleavage with LAG‐3 as its sole molecular target.