The neural cell adhesion molecule NCAM mediates intercellular adhesion by hemophilic binding and its homophilic binding site has been mapped to a decapeptide sequence 243-KYSFNYDGSE-252 located within the third immunoglobulin-like domain of chick NCAM. To investigate the relationship between homophilic binding and NCAM-dependent neurite outgrowth, mutations were created in the binding site of NCAM-140 cDNA. Mutant NCAMs were expressed in L cells, and their ability to promote neurite outgrowth from chick retinal ganglion cells was assayed in coculture systems. Mutations that resulted in the loss of NCAM homophilic binding failed to promote neurite outgrowth from retinal cells. Alternatively, synthetic peptides containing the decapeptide sequence of the homophilic binding site were used to block NCAM homophilic interaction. Peptides that inhibited NCAM-NCAM binding also blocked neurite elongation. However, the peptide P5 (243-KYSFNY-DGSELIIKKVDKSDE-263), despite being an inhibitor of NCAM-NCAM binding, induced the sprouting of multiple neurites. Moreover, peptide P5 stimulated a 2-fold increase in neurite-bearing cells, suggesting that P5 is a potent inducer of neurite outgrowth. Only E4-E6 retinal cells could be induced by P5, corresponding closely to their NCAM-responsive embryonic stages. The P5 effects were inhibited by pertussis toxin, indicating the involvement of a G-protein-dependent pathway. Taken together, these results provide evidence for a direct role of the NCAM homophilic binding site in the regulation of neurite outgrowth.