Developing neurons extend long processes to specific distal targets using extracellular molecules as guidance cues to navigate through the embryo. Growth cones, specialized structures at the tip of the extending processes, are thought to accomplish this navigation through receptors that recognize guidance cues and modulate growth accordingly. In Drosophila, several receptor tyrosine phosphatases (rPTPs), including DLAR, have been shown to participate in directing neurite outgrowth. As yet, however, it is not known how rPTPs act to affect navigation. To gain insight into the mechanisms of rPTP-mediated outgrowth guidance, we have investigated the role of HmLAR2, a Hirudo medicinalis homologue of DLAR, in process outgrowth. HmLAR2 is expressed by, among other cells, a transient neuron-like template cell, the Comb cell. Here we present evidence that HmLAR2 protein becomes concentrated within their growth cones at a stage when C cell processes undergo rapid outgrowth. When antibodies raised against the extracellular domain of HmLAR2 were injected into intact embryos, they bound specifically to the C cell surface at growth cones and along processes and caused the partial internalization of HmLAR2 receptors. Moreover, the C cell processes were found to project aberrantly, to deviate from their normally highly regular trajectories and to extend shorter distances in the presence of the antibodies. We propose that HmLAR2 is required by the C cell for guidance and extension and suggest that it functions via its ectodomain to transduce extracellular guidance cues.