The cell adhesion molecule L1 plays an important role in neural development, and mutations in human L1 have been implicated in X‐linked hydrocephalus and related neurological diseases. We have previously demonstrated that recombinant proteins containing the second immunoglobulin‐like domain (Ig2) of L1 contain both homophilic binding and neuritogenic activities. In this report, the involvement of L1 Ig2 in cell‐cell adhesion and neuritogenesis was further evaluated in cell transfection studies. Transfectants expressing intact L1 were capable of undergoing L1‐dependent self‐aggregation and promoting neurite outgrowth from neural retinal cells. However, both activities were abolished in transfectants expressing L1Δ2, a mutant L1 with Ig2 deleted. In competition experiments, the wild‐type Ig2 fusion protein inhibited L1‐dependent cell aggregation, whereas an Ig2 fusion protein containing the hydrocephalus mutation R184Q did not. Oligopeptides flanking Arg184 were therefore synthesized and assayed for their effects on L1‐mediated cell‐cell binding and neuritogenesis. The peptide L1‐A, spanning the residues His178 and Gly191, inhibited both L1‐ and Ig2 fusion protein‐mediated homophilic binding. When neural retinal cells were cultured on substrate‐coated Ig2 fusion protein, peptide L1‐A also abolished L1‐dependent neurite outgrowth. Substitutions of several charged residues and hydrophobic residues with alanine in peptide analogues led to the loss of inhibitory effects, suggesting that multiple amino acids might be involved in L1‐L1 binding. Taken together, these results identify an L1 homophilic binding site within the sequence HIKQDERVTMGQNG of Ig2 and demonstrate the requirement of L1 homophilic binding in the promotion of neurite outgrowth.