We have analyzed the mechanism of activation of the Epidermal growth factor receptor (Egfr) by the transforming growth factor (TGF) alpha-like molecule, Gurken (Grk). Grk is expressed in the oocyte and activates the Egfr in the surrounding follicle cells during oogenesis. We show that expression of either a membrane bound form of Grk (mbGrk), or a secreted form of Grk (secGrk), in either the follicle cells or in the germline, activates the Egfr. In tissue culture cells, both forms can bind to the Egfr; however, only the soluble form can trigger Egfr signaling, which is consistent with the observed cleavage of Grk in vivo. We find that the two transmembrane proteins Star and Brho potentiate the activity of mbGrk. These two proteins collaborate to promote an activating proteolytic cleavage and release of Grk. After cleavage, the extracellular domain of Grk is secreted from the oocyte to activate the Egfr in the follicular epithelium.