The shares hit a low of $34.84 on the New York Stock Exchange, the first time they have fallen below $37 since the shares started trading on Nov. 7.
Twitter's IPO was priced at $26 per share.
The reaction to Twitter's lock-up expiry was in sharp contrast to that of Facebook Inc in late 2012.
Facebook shares jumped 13 percent on Nov. 14, 2012 when its lock-up expiry of roughly 800 million shares did not trigger an immediate wave of insider selling.
Twitter's lock-up involves about 470 million shares.
Tuesday's selling placed even greater pressure on the stock, which has been trading at an all-time low since April 29 when Twitter disclosed sagging usage metrics.
Twitter has comfortably hit its revenue targets in the two quarters since it went public.
But rapidly mounting concerns about user growth and engagement levels have wiped out about half of the company's market value - or about $18 billion - since late December.
The largest holder of Twitter shares, private equity firm Rizvi Traverse, has no intention to sell upon the expiration of the lockup, a person familiar with the matter said on Friday. Rizvi Traverse, which owns about 85.2 million Twitter shares, could not be immediately reached for comment.Twitter co-founders Jack Dorsey and Evan Williams and Chief Executive Dick Costolo said in April that they did not plan to sell shares after the restrictions were lifted.
Venture capital firm Benchmark, which holds a roughly 6 percent stake, has also said it would not sell its stake. But other major shareholders could see an opportunity to cash out, given that none of Twitter's insiders sold their shares during the IPO.
Large shareholders include venture capital firms Lowercase Capital, Spark Capital and Union Square Ventures. None could be reached for a comment.
Many technology companies have a lock-up clause to prevent holders from flooding the market as soon as the company goes public.
Twitter allowed one batch of shares to be sold in February, but that lockup governed only about 10 million shares, most of which were held by non-executive employees.
© Thomson Reuters 2014