CD44 is a major cell surface adhesion molecule for hyaluronan, a component of the extracellular matrix, and is implicated in tumor metastasis and invasion. We reported previously that hyaluronan oligosaccharides induce CD44 cleavage from tumor cells. Here we show that engagement of CD44 promotes CD44 cleavage and tumor cell migration, both of which were suppressed by a metalloproteinase inhibitor KB-R7785 and tissue inhibitor of metalloproteinases-1 (TIMP-1) but not by TIMP-2. We also present evidence that blockade of metalloproteinase-disintegrin ADAM10 (a disintegrin and metalloproteinase 10) by RNA interference suppresses CD44 cleavage induced by its ligation. Engagement of CD44 concurrently induced activation of the small GTPase Rac1 and led to drastic changes in cell morphology and actin cytoskeleton with redistribution of CD44 to newly generated membrane ruffling areas. A fluorescence resonance energy transfer approach to visualize GTP-bound Rac1 in living cells revealed the localization of the active Rac1 in the leading edge of the membrane ruffling areas upon ligation of CD44. Taken together, our results indicate that the cleavage of CD44 catalyzed by ADAM10 is augmented by the intracellular signaling elicited by engagement of CD44, through Rac-mediated cytoskeletal rearrangement, and suggest that CD44 cleavage contributes to the migration and invasion of tumor cells.