Protocadherins have been shown to regulate cell adhesion, cell migration, cell survival, and tissue morphogenesis in the embryo and the central nervous system, but little is known about the mechanism of protocadherin function. We previously showed that Xenopus paraxial protocadherin (PAPC) mediates cell sorting and morphogenesis by down-regulating the adhesion activity of a classical cadherin, C-cadherin. Classical cadherins function by forming lateral dimers that are necessary for their adhesive function. However, it is not known whether oligomerization also plays a role in protocadherin function. We show here that PAPC forms oligomers that are stabilized by disulfide bonds formed between conserved Cys residues in the extracellular domain. Disruption of these disulfide bonds by dithiothreitol or mutation of the conserved cysteines results in defects in oligomerization, post-translational modification, trafficking to the cell surface and cell sorting function of PAPC. Furthermore, none of the residues in the cytoplasmic domain of PAPC is required for its cell sorting activity, whereas both the transmembrane domain and the extracellular domain are necessary. Therefore, protein oligomerization and/or protein interactions via the extracellular and transmembrane domains of PAPC are required for its cell sorting function.