The neural cell adhesion molecule (N-CAM) plays an integral role in cell interactions during neural development, with the binding of heparan sulfate proteoglycan to the amino-terminal region of N-CAM being required for N-CAM function. In the present study we have used synthetic peptides (HBD-1 and HBD-2), derived from the primary amino acid sequence of rat N-CAM, to identify the region of N-CAM that binds heparan sulfate. The 28 amino acid HBD-1 synthetic peptide was shown to bind both [3H]heparin and dissociated retinal cells. Retinal cells also attach to a substratum of HBD-2 peptide, but fail to bind to a control peptide containing a scrambled amino acid sequence of HBD-2. The HBD-2 peptide also inhibits retinal cell adhesion to N-CAM, demonstrating the physiological importance of the amino acid sequence encoded by the HBD peptide. These data therefore permit the localization of a heparin binding domain to a 17 amino acid region of immunoglobulin-like loop 2.