"I've waived all of my legal rights. If he's got a clandestine tape, he should feel free to go and release that tape. My view is it's time for him to put up or shut up."
Mr Key said the allegation that a recording had been made and then destroyed was "incredibly serious".
Staff at the GCSB had looked at the source data, checked the logs and spoken to every camera operator.
Neither Mr Key nor staff spoken to by the GCSB director could recall any quip about Dotcom.
Mr Key said he was "more than happy to respond" if any covert recording was released.
A spokesman for Mr Shearer said he had been quite clear he did not have a copy of the tape himself.
It was up to Mr Key to answer questions over what he knew about Dotcom and the GCSB's involvement at that time.
Mr Key's challenge to the Labour leader comes a day before he is due to correct his statement to Parliament about when he was first informed of the Dotcom case.
Earlier this month, Mr Key acknowledged the GCSB's February 29 briefing had made reference to Dotcom - months before he was officially briefed on the operation on September 17.
Mr Key has said he would "provide this additional information" in a correction to Parliament when it resumes tomorrow.