The cytokine Spätzle is the ligand for Drosophila Toll, the prototype of an important family of membrane receptors that function in embryonic patterning and innate immunity. A dimeric precursor of Spätzle is processed by an endoprotease to produce a form (C-106) that cross-links Toll receptor ectodomains and establishes signaling. Here we show that before processing the pro-domain of Spätzle is required for correct biosynthesis and secretion. We mapped two loss-of-function mutations of Spätzle to a discrete site in the pro-domain and showed that the phenotype arises because of a defect in biosynthesis rather than signaling. We also report that the pro-domain and C-106 remain associated after cleavage and that this processed complex signals with the same characteristics as the C-terminal fragment. These results suggest that before activation the determinants on C-106 that bind specifically to Toll are sequestered by the pro-domain and that proteolytic processing causes conformational rearrangements that expose these determinants and enables binding to Toll. Furthermore, we show that the pro-domain is released when the Toll extracellular domain binds to the complex, a finding that has implications for the generation of a signaling-competent Toll dimer.