Until recently, the existence of extracellular kinase activity was questioned. Many proteins of the central nervous system are targeted, but it remains unknown whether, or how, extracellular phosphorylation influences brain development. Here we show that the tyrosine kinase vertebrate lonesome kinase (VLK), which is secreted by projecting retinal ganglion cells, phosphorylates the extracellular protein repulsive guidance molecule b (RGMb) in a dorsal-ventral descending gradient. Silencing of VLK or RGMb causes aberrant axonal branching and severe axon misguidance in the chick optic tectum. Mice harboring RGMb with a point mutation in the phosphorylation site also display aberrant axonal pathfinding. Mechanistic analyses show that VLK-mediated RGMb phosphorylation modulates Wnt3a activity by regulating LRP5 protein gradients. Thus, the secretion of VLK by projecting neurons provides crucial signals for the accurate formation of nervous system circuitry. The dramatic effect of VLK on RGMb and Wnt3a signaling implies that extracellular phosphorylation likely has broad and profound effects on brain development, function and disease.