Wnt/Wingless (Wg) is essential for embryonic development and adult homeostasis in all metazoans, but the mechanisms by which secreted Wnt/Wg is processed remain largely unknown. A Drosophila Sol narae (Sona) is a member of A Disintegrin And Metalloprotease with ThromboSpondin motif (ADAMTS) family, and positively regulates Wg signaling by promoting Wg secretion. Here we report that Sona and Wg are secreted by both conventional Golgi and exosomal transports, and Sona cleaves extracellular Wg at the two specific sites, leading to the generation of N-terminal domain (NTD) and C-terminal domain (CTD) fragments. The cleaved forms of extracellular Wg were detected in the extracellular region of fly wing discs, and its level was substantially reduced in sona mutants. Transient overexpression of Wg-CTD increased wing size while prolonged overexpression caused lethality and developmental defects. In contrast, Wg-NTD did not induce any phenotype. Moreover, the wing defects and lethality induced by sona RNAi were considerably rescued by Wg-CTD, indicating that a main function of extracellular Sona is the generation of Wg-CTD. Wg-CTD stabilized cytoplasmic Armadillo (Arm) and had genetic interactions with components of canonical Wg signaling. Wg-CTD also induced Wg downstream targets such as Distal-less (Dll) and Vestigial (Vg). Most importantly, Cyclin D (Cyc D) was induced by Wg-CTD but not by full-length Wg. Because Sona also induces Cyc D in a cell non-autonomous manner, Wg-CTD generated by Sona in the extracellular region activates a subset of Wg signaling whose major function is the regulation of cell proliferation.