Spitz (Spi) is the most prominent ligand of the Drosophila EGF receptor (DER). It is produced as an inactive membrane precursor which is retained in the endoplasmic reticulum (ER). To allow cleavage, Star transports Spi to the Golgi, where it undergoes cleavage by Rhomboid (Rho). Since some DER phenotypes are not mimicked by any of its known activating ligands, we identified an additional ligand by database searches, and termed it Keren (Krn). Krn is a functional homolog of Spi since it can rescue the spi mutant phenotype in a Rho- and Star-dependent manner. In contrast to Spi, however, Krn also possesses a Rho/Star-independent ability to undergo low-level cleavage and activate DER, as evident both in cell culture and in flies. The difference in basal activity correlates with the cellular localization of the two ligands. While Spi is retained in the ER, the retention of Krn is only partial. Examining Spi/Krn chimeric and deletion constructs implicates the Spi cytoplasmic domain in inhibiting its basal activity. Low-level activity of Krn calls for tightly regulated expression of the Krn precursor.