The cadherins are calcium-dependent cell adhesion molecules which regulate cell–cell interactions during morphogenesis. During development, cadherin expression is subject to dynamic patterns of regulation. We have previously demonstrated that expression of N-cadherin, the predominant cadherin of neural tissues, is sharply down-regulated during development of the retina and brain during later stages of histogenesis (Lagunowich and Grunwald, Dev Biol 135:158–171, 1989; Lagunowich et al., J Neurosci Res32;202–208, 1992), and that this down-regulation is due to multiple factors, including decreased mRNA levels and turnover apparently mediated by endogenous metalloproteolytic activity (Roark et al., Development 114:973–984, 1992). In the present study, we describe metabolic studies which provide direct biochemical evidence for turnover of 130-kDa N-cadherin in embryonic retina tissues, yielding a soluble 90-kDa N-terminal fragment. We demonstrate that this form of N-cadherin, which we refer to as NCAD90, accumulates in vivo during development. We further demonstrate that purified NCAD90, obtained from embryonic vitreous humor, retains biological function and promotes cell adhesion and neurite growth in a dose-dependent fashion among chick embryo neural retina cells when present in a substrate-bound form. The morphology of retinal cells and neurites grown on a substrate of NCAD90 differs strikingly from that seen on a laminin substrate, in a manner similar to that described for intact 130-kDa N-cadherin. We conclude that proteolysis of N-cadherin at the cell surface during embryonic retinal histogenesis is an endogenous mechanism for regulating N-cadherin expression which generates a novel and functional from of the protein. The results further indicate that an intact cytoplasmic domain is not essential for all cadherin functions. © 1993 Wiley-Liss, Inc.