Post-translational cleavage at the G protein-coupled receptor proteolytic site (GPS) has been demonstrated in many class B2 G protein-coupled receptors as well as other cell surface proteins such as polycystin-1. However, the mechanism of the GPS proteolysis has never been elucidated. Here we have characterized the cleavage of the human EMR2 receptor and identified the molecular mechanism of the proteolytic process at the GPS. Proteolysis at the highly conserved His-Leu downward arrow Ser(518) cleavage site can occur inside the endoplasmic reticulum compartment, resulting in two protein subunits that associate noncovalently as a heterodimer. Site-directed mutagenesis of the P(+1) cleavage site (Ser(518)) shows an absolute requirement of a Ser, Thr, or Cys residue for efficient proteolysis. Substitution of the P(-2) His residue to other amino acids produces slow processing precursor proteins, which spontaneously hydrolyze in a defined cell-free system. Further biochemical characterization indicates that the GPS proteolysis is mediated by an autocatalytic intramolecular reaction similar to that employed by the N-terminal nucleophile hydrolases, which are known to activate themselves by self-catalyzed cis-proteolysis. We propose here that the autoproteolytic cleavage of EMR2 represents a paradigm for the other GPS motif-containing proteins and suggest that these GPS proteins belong to a cell surface receptor subfamily of N-terminal nucleophile hydrolases.