In spite of advances in understanding the role of the cellular prion protein (PrP) in neural cell interactions, the mechanisms of PrP function remain poorly characterized. We show that PrP interacts directly with the neural cell adhesion molecule (NCAM) and associates with NCAM at the neuronal cell surface. Both cis and trans interactions between NCAM at the neuronal surface and PrP promote recruitment of NCAM to lipid rafts and thereby regulate activation of fyn kinase, an enzyme involved in NCAM-mediated signaling. Cis and trans interactions between NCAM and PrP promote neurite outgrowth. When these interactions are disrupted in NCAM-deficient and PrP-deficient neurons or by PrP antibodies, NCAM/PrP-dependent neurite outgrowth is arrested, indicating that PrP is involved in nervous system development cooperating with NCAM as a signaling receptor.