Beta-site amyloid precursor protein cleaving enzyme 1 (BACE1), also known as β-secretase, is an aspartic protease. The sorting of this enzyme into Rab11-positive recycling endosomes regulates the BACE1-mediated cleavage of its substrates, however, the mechanisms underlying this targeting remain poorly understood. The neural cell adhesion molecule 2 (NCAM2) is a substrate of BACE1. We show that BACE1 cleaves NCAM2 in cultured hippocampal neurons and NCAM2-transfected CHO cells. The C-terminal fragment of NCAM2 that comprises the intracellular domain and a small portion of NCAM2’s extracellular domain, associates with BACE1. This association is not affected in cells with inhibited endocytosis, indicating that the interaction of NCAM2 and BACE1 precedes the targeting of BACE1 from the cell surface to endosomes. In neurons and CHO cells, this fragment and BACE1 co-localize in Rab11-positive endosomes. Overexpression of full-length NCAM2 or a recombinant NCAM2 fragment containing the transmembrane and intracellular domains but lacking the extracellular domain leads to an increase in BACE1 levels in these organelles. In NCAM2-deficient neurons, the levels of BACE1 are increased at the cell surface and reduced in intracellular organelles. These effects are correlated with increased levels of the soluble extracellular domain of BACE1 in the brains of NCAM2-deficient mice, suggesting increased shedding of BACE1 from the cell surface. Of note, shedding of the extracellular domain of Sez6, a protein cleaved exclusively by BACE1, is reduced in NCAM2-deficient animals. These results indicate that the BACE1-generated fragment of NCAM2 regulates BACE1 activity by promoting the targeting of BACE1 to Rab11-positive endosomes.