CIRL (the calcium-independent receptor of alpha-latrotoxin), a neuronal cell surface receptor implicated in the regulation of exocytosis, is a member of the GPS family of chimeric cell adhesion/G protein-coupled receptors. The predominant form of CIRL is a membrane-bound complex of two subunits, p120 and p85. Extracellularly oriented p120 contains hydrophilic cell adhesion domains, whereas p85 is a heptahelical membrane protein. Both subunits are encoded by the same gene and represent products of intracellular proteolytic processing of the CIRL precursor. In this study, we demonstrate that a soluble form of CIRL also exists in vitro and in vivo. It results from the further cleavage of CIRL by a second protease. The site of the second cleavage is located in the short N-terminal extracellular tail of p85, between the GPS domain and the first transmembrane segment of CIRL. Thus, the soluble form of CIRL represents a complex of p120 noncovalently bound to a 15 amino acid residue N-terminal peptide fragment of p85. We have previously shown that mutations of CIRL in the GPS domain inhibit intracellular proteolytic processing and also result in the absence of the receptors from the cell surface. Our current data suggest that although CIRL trafficking to the cell membrane is impaired by mutations in the GPS region, it is not blocked completely. However, at the cell surface, the noncleaved mutants are preferentially targeted by the second protease that sheds the extracellular subunit. Therefore, the two-step proteolytic processing may represent a regulatory mechanism that controls cell surface expression of membrane-bound and soluble forms of CIRL.