Expression of the Drosophila cell adhesion molecule neuroglian in S2 cells leads to cell aggregation and the intracellular recruitment of ankyrin to cell contact sites. We localized the region of neuroglian that interacts with ankyrin and investigated the mechanism that limits this interaction to cell contact sites. Yeast two-hybrid analysis and expression of neuroglian deletion constructs in S2 cells identified a conserved 36-amino acid sequence that is required for ankyrin binding. Mutation of a conserved tyrosine residue within this region reduced ankyrin binding and extracellular adhesion. However, residual recruitment of ankyrin by this mutant neuroglian molecule was still limited to cell contacts, indicating that the lack of ankyrin binding at noncontact sites is not caused by tyrosine phosphorylation. A chimeric molecule, in which the extracellular domain of neuroglian was replaced with the corresponding domain from the adhesion molecule fasciclin II, also selectively recruited ankyrin to cell contacts. Thus, outside-in signaling by neuroglian in S2 cells depends on extracellular adhesion, but does not depend on any unique property of its extracellular domain. We propose that the recruitment of ankyrin to cell contact sites depends on a physical rearrangement of neuroglian in response to cell adhesion, and that ankyrin binding plays a reciprocal role in stabilizing the adhesive interaction.