The central nervous system myelin components oligodendrocyte-myelin glycoprotein, myelin-associated glycoprotein and the Nogo-66 domain of Nogo-A inhibit neurite outgrowth by binding the neuronal glycosyl-phosphatidylinositol-anchored Nogo-66 receptor (NgR) that transduces the inhibitory signal to the cell interior via a transmembrane co-receptor, p75NTR. Here, we demonstrate that human NgR expressed in human neuroblastoma cells is constitutively cleaved in a post-ER compartment to generate a lipid-raft associated C-terminal fragment that is present on the cell surface and a soluble N-terminal fragment that is released into the medium. Mass spectrometric analysis demonstrated that the N-terminal fragment terminated just after the C-terminus of the ligand-binding domain of NgR. In common with other shedding mechanisms, the release of this fragment was blocked by a hydroxamate-based inhibitor of zinc metalloproteinases, but not by inhibitors of other protease classes and up-regulated by treatment with the cellular cholesterol depleting agent methyl-beta-cyclodextrin. The N-terminal fragment bound Nogo-66 and blocked Nogo-66 binding to cell surface NgR but failed to associate with p75NTR, indicative of a role as a Nogo-66 antagonist. Furthermore, the N- and C-terminal fragments of NgR were detectable in human brain cortex and the N-terminal fragment was also present in human cerebrospinal fluid, demonstrating that NgR proteolysis occurs within the human nervous system. Our findings thus identify a potential cellular mechanism for the regulation of NgR function at the level of the receptor.