Discoidin domain receptors (DDR1 and DDR2) are widely expressed cell-surface receptors, which bind to and are activated by collagens, including collagen type 1. Activation of DDRs and the resulting downstream signaling is known to regulate the extracellular matrix. However, little is known about how DDRs interact with collagen and its direct impact on collagen regulation. Here, we have established that by binding to collagen, the extracellular domain (ECD) of DDR2 inhibits collagen fibrillogenesis and alters the morphology of collagen type 1 fibers. Our in vitro assays utilized DDR2-Fc fusion proteins, which contain only the ECD of DDR2. Using surface plasmon resonance, we confirmed that further oligomerization of DDR2-Fc (by means of anti-Fc antibody) greatly enhances its binding to immobilized collagen type 1. Collagen turbidity measurements and biochemical assays indicated that DDR2 delays the formation of collagen fibrils. Atomic force microscopy of soluble collagen revealed that a predominately monomeric state of collagen was present with DDR2, while control solutions had an abundance of polymeric collagen. Transmission electron microscopy of collagen fibers, showed that the native periodic banded structure of collagen fibers was weakened and nearly absent in the presence of DDR2. Further, using a cell-based assay we demonstrate that overexpression of full length DDR2 inhibits fibrillogenesis of collagen type 1. Our results demonstrate a novel and important functional role of the DDR2 ECD that may contribute to collagen regulation via modulation of fibrillogenesis.