The voltage-gated sodium channel beta2-subunit (beta2) is a member of the IgCAM superfamily and serves as both an adhesion molecule and an auxiliary subunit of the voltage-gated sodium channel. Here we found that beta2 undergoes ectodomain shedding followed by presenilin (PS)-dependent gamma-secretase-mediated cleavage. 12-O-Tetradecanoylphorbol-13-acetate treatment or expression of an alpha-secretase enzyme, ADAM10, resulted in ectodomain cleavage of beta2 in Chinese hamster ovary cells. Subsequent cleavage of the remaining 15-kDa C-terminal fragment (beta2-CTF) was independently inhibited by three specific gamma-secretase inhibitors, expression of the dominant negative form of PS1, and in PS1/PS2 knock-out cells. gamma-Secretase inhibitor treatment also increased endogenous beta2-CTF levels in neuroblastoma cells and mouse primary neuronal cultures. In a cell-free gamma-secretase assay, we detected gamma-secretase activity-dependent generation of a 12 kDa beta2 intracellular domain (ICD), which was loosely associated with the membrane fraction. To assess the functional role of beta2 processing by gamma-secretase, we tested whether N-[N-(3,5-difluorophenylacetyl-l-alanyl)]-S-phenylglycine t-butylester (DAPT), a specific gamma-secretase inhibitor, would alter beta2-mediated cell adhesion and migration. We found that DAPT inhibited cell-cell aggregation and migration in a wound healing assay carried out with Chinese hamster ovary cells expressing beta2. DAPT also reduced migration of neuroblastoma cells in a modified Boyden chamber assay. Since DAPT treatment resulted in increased beta2-CTF levels, we also tested whether beta2-CTFs or beta2-ICDs would directly affect cell migration by overexpressing recombinant proteins. Interestingly, elevated levels of beta2-CTFs, but not ICDs, also blocked cell migration by 81 to 93%. Together, our findings show for the first time that beta2 is a PS/gamma-secretase substrate and gamma-secretase mediated cleavage of beta2-CTF is required for cell-cell adhesion and migration of beta2-expressing cells.