Transmembrane forms of neural cell adhesion molecule (NCAM140, NCAM180(1)) are key regulators of neuronal development. The extracellular domain of NCAM can occur as a soluble protein in normal brain, and its levels are elevated in neuropsychiatric disorders, such as schizophrenia; however the mechanism of ectodomain release is obscure. Ectodomain shedding of NCAM140, releasing a fragment of 115 kD, was found to be induced in NCAM-transfected L-fibroblasts by the tyrosine phosphatase inhibitor pervanadate, but not phorbol esters. Pervanadate-induced shedding was mediated by a disintegrin metalloprotease (ADAM), regulated by ERK1/2 MAP kinase. In primary cortical neurons, NCAM was shed at high levels, and the metalloprotease inhibitor GM6001 significantly increased NCAM-dependent neurite branching and outgrowth. Moreover, NCAM-dependent neurite outgrowth and branching were inhibited in neurons isolated from a transgenic mouse model of NCAM shedding. These results suggest that regulated metalloprotease-induced ectodomain shedding of NCAM down-regulates neurite branching and neurite outgrowth. Thus, increased levels of soluble NCAM in schizophrenic brain have the potential to impair neuronal connectivity.