The transmembrane and multidomain neural adhesion molecule L1 plays important functional roles in the developing and adult nervous system. L1 is proteolytically processed at two distinct sites within the extracellular domain, leading to the generation of different fragments. In this report, we present evidence that the proprotein convertase PC5A is the protease that cleaves L1 in the third fibronectin type III domain, whereas the proprotein convertases furin, PC1, PC2, PACE4, and PC7 are not effective in cleaving L1. Analysis of mutations revealed Arg 845 to be the site of cleavage generating the N-terminal 140-kDa fragment. This fragment was present in the hippocampus, which expresses PC5A, but was not detectable in the cerebellum, which does not express PC5A. The 140-kDa L1 fragment was found to be tightly associated with the full-length 200-kDa L1 molecule. The complex dissociated from the membrane upon cleavage by a protease acting at a more membrane-proximal site of full-length L1. This proteolytic cleavage was inhibited by the metalloprotease inhibitor GM 6001 and enhanced by a calmodulin inhibitor. L1-dependent neurite outgrowth of cerebellar neurons was inhibited by GM 6001, suggesting that proteolytic processing of L1 by a metalloprotease is involved in neurite outgrowth.Proteolytic processing of cell-surface proteins is of prime importance for regulating the functional properties of these proteins (for reviews, see Refs. 1-5). Cleavage of recognition molecules at the cell surface has been implicated in neuronal migration, neurite outgrowth, and synaptic plasticity (6 -13). Among the neural adhesion molecules, L1 has been shown to undergo proteolytic cleavage, which has been suggested to be involved in several functions of this molecule.L1 is a member of the immunoglobulin superfamily consisting of immunoglobulin-like domains and fibronectin type III repeats (for reviews, see Refs. 14 and 15). In the central nervous system, L1 is expressed only by post-mitotic neurons and mainly on non-myelinated axons, whereas in the peripheral nervous system, it is expressed by neurons as well as by non-myelinating Schwann cells. L1 is also expressed by nonneural cells, including normal and transformed cells of hematopoietic and epithelial origin. L1 is involved in neuronal migration, neurite outgrowth, and myelination (for review, see Ref. 14) as well as axon guidance, fasciculation, and regeneration (16,17). Furthermore, it enhances cell survival (18) and synaptic plasticity (19). The importance of L1 in nervous system development is underscored by the abnormal phenotypes of L1 mutations in humans and mice (for review, see Ref. 20). L1 engages in homophilic and heterophilic cell interactions (for reviews, see Refs. 14 and 15) Heterophilic binding partners are the RGD-binding integrins and TAG-1/ axonin-1, F3/F11/contactin, NCAM, CD9, CD24, and phosphacan (Ref. 21 and references therein). These interactions are likely to depend on the presentation of the L1 molecule either as a membrane-bound form or as a proteolytic...