Autotaxin (ATX) is a secreted lysophospholipase D that generates the lipid mediator lysophosphatidic acid (LPA), playing a key role in diverse physiological and pathological processes. ATX exists in distinct splice variants, but isoform-specific functions remain elusive. Here we characterize the ATXα isoform, which differs from the canonical form (ATXβ) in having a 52-residue polybasic insertion of unknown function in the catalytic domain. We find that the ATXα insertion is susceptible to cleavage by extracellular furin-like endoproteases, but cleaved ATXα remains structurally and functionally intact due to strong interactions within the catalytic domain. Through ELISA and surface plasmon resonance assays, we show that ATXα binds specifically to heparin with high affinity (K(d) ~10(-8) M), whereas ATXβ does not; furthermore, heparin moderately enhanced the lysophospholipase D activity of ATXα. We further show that ATXα, but not ATXβ, binds abundantly to SKOV3 carcinoma cells. ATXα binding was abolished after treating the cells with heparinase III, but not after chondroitinase treatment. Thus, the ATXα insertion constitutes a cleavable heparin-binding domain that mediates interaction with heparan sulfate proteoglycans, thereby targeting LPA production to the plasma membrane.