The ectodomain of the neurotrophin receptor TrkA has been recovered as a soluble fragment from the culture media of cells by a process that involves endoproteolytic cleavage. This cleavage may be upregulated by several treatments, including NGF treatment or protein kinase C activation. In this report we have investigated the cellular site and proteolytic activities involved in TrkA cleavage, and the effects of ectodomain truncation on signalling. Cleavage occurs when the receptor is at, or near, the cell surface, and it can be prevented by agents that affect protein sorting. Cleavage generates several cell-bound fragments, and their generation can be differentially blocked by inhibitors, documenting the involvement of multiple plasma membrane metalloendoproteases. The major cell-bound receptor fragment (i) is tyrosine-phosphorylated in vivo; (ii) does autophosphorylate in vitro; and (iii) is able to associate with intracellular signalling substrates. Artificial deletion of the TrkA ectodomain results in an active receptor that induced neurite outgrowth in pheochromocytoma cells. Cleavage by this natural cellular mechanism appears thus to serve not only as an outlet of receptor binding fragments, but also to generate signalling-competent cell-bound receptor fragments. In the nervous system this ligand-independent receptor activation could play important roles in the development and survival of neurons.