Leukocyte-common antigen-related (LAR) receptor tyrosine phosphatase regulates cell adhesion and formation of functional synapses and neuronal networks. Here we report that LAR is sequentially cleaved by alpha- and presenilin (PS)/gamma-secretases, which also affect signaling and/or degradation of type-I membrane proteins including the Alzheimer disease-related beta-amyloid precursor protein. Similar to the previously characterized PS/gamma-secretase substrates, inhibition of gamma-secretase activity resulted in elevated LAR C-terminal fragment (LAR-CTF) levels in stably LAR-overexpressing Chinese hamster ovary (CHO) cells, human neuroglioma cells, and mouse cortical neurons endogenously expressing LAR. Furthermore, LAR-CTF levels increased in cells lacking functional PS, indicating that gamma-secretase-mediated cleavage of LAR was PS-dependent. Inhibition of alpha-secretase activity by TAPI-1 treatment blocked LAR-CTF accumulation, demonstrating that prior ectodomain shedding was prerequisite for PS/gamma-secretase-mediated cleavage of LAR. Moreover, we identified the product of PS/gamma-secretase cleavage, LAR intracellular domain (LICD), both in vitro and in cells overexpressing full-length (FL) LAR or LAR-CTFs. LAR localizes to cadherin-beta-catenin-based cellular junctions. Assembly and disassembly of these junctions are regulated by tyrosine phosphorylation. We found that endogenous tyrosine-phosphorylated beta-catenin coimmunoprecipitated with LAR in CHO cells. However, when PS/gamma-secretase activity was inhibited, the association between LAR and beta-catenin significantly diminished. In addition to cell adhesion, beta-catenin is involved in transcriptional regulation. We observed that LICD significantly decreased transcription of cyclin D1, one of the beta-catenin target genes. Thus, our results show that PS/gamma-secretase-mediated cleavage of LAR controls LAR-beta-catenin interaction, suggesting an essential role for PS/gamma-secretase in the regulation of LAR signaling.