Thyroid-stimulating hormone receptor (TSHR) consists of a hormone-binding extracellular subunit and a seven-transmembrane spanning subunit that interacts with the G proteins G(alphas) and G(alphaq). The two subunits, generated by proteolytic cleavage of a single polypeptide chain, are held together by disulphide bridges. The receptor is completely cleaved in thyroid tissue, while in cultured cells (thyrocytes and non-thyroid cells) the cleaved and uncleaved forms coexist. The reasons for these divergent data are not understood. Here we provide an explanation by showing that cleavage depends on cell-cell contacts. An almost complete cleavage was observed in confluent cells, while in sparse cells most of the receptor was in the uncleaved form. We also show that coupling of TSHR to G(alphaq) (as measured by inositolphosphate generation) is markedly reduced when the receptor is not cleaved. In contrast, coupling to G(alphas) [as measured by cyclic adenosine 3',5'-monophosphate (cAMP) synthesis] is unaffected by cleavage of the receptor. These results suggest that the cell-cell contacts are necessary for cleavage of the receptor, which acts as a regulatory step in inositolphosphate production via phospholipase C activation. The latter observation was confirmed using cells that express the uncleavable mutant TSHR-delta50-NET, for which the TSH-stimulated inositolphosphate production was completely abolished.