The type C natriuretic peptide (CNP)-activated guanylate cyclase (CNP-RGC) is a single-chain transmembrane-spanning protein, predicted to contain both ligand binding and catalytic activities. Upon binding CNP, CNP-RGC catalyzes the formation of cyclic GMP. We now show that the Glu-332 residue residing in the extracellular region of CNP-RGC plays an important role in signal transduction. Deletion of the CNP-RGC intracellular region resulted in the CNP receptor which lacked cyclase activity; deletion or substitution of Glu-332 with His or Lys resulted in almost total loss of both CNP binding and the CNP-dependent cyclase activity without affecting the basal cyclase activity of the mutant proteins. These observations support the general signal transduction model of the subfamily of natriuretic factor receptor cyclases where it is predicted that ligand binding to the extracellular receptor domain of the protein activates the cytosolic catalytic domain, generating the second-messenger cyclic GMP, and identify an amino acid residue of CNP-RGC that plays an important role in CNP signaling.