The adhesion class G protein-coupled receptors (adhesion-GPCRs) play important roles in diverse biological processes ranging from immunoregulation to tissue polarity, angiogenesis, and brain development. These receptors are uniquely modified by self-catalytic cleavage at a highly conserved GPCR proteolysis site (GPS) dissecting the receptor into an extracellular subunit (α) and a seven-pass transmembrane subunit (β) with cellular adhesion and signaling functions, respectively. Using the myeloid cell-restricted EMR2 receptor as a paradigm, we exam the mechanistic relevance of the subunit interaction and demonstrate a critical role for GPS autoproteolysis in mediating receptor signaling and cell activation. Interestingly, two distinct receptor complexes are identified as a result of GPS proteolysis: one consisting of a noncovalent α-β heterodimer and the other comprising two completely independent receptor subunits which distribute differentially in membrane raft microdomains. Finally, we show that receptor ligation induces subunit translocation and colocalization within lipid rafts, leading to receptor signaling and inflammatory cytokine production by macrophages. Our present data resolve earlier conflicting results and provide a new mechanism of receptor signaling, as well as providing a paradigm for signal transduction within the adhesion-GPCR family.