Carcinoembryonic antigen (CEA)-related cell adhesion molecule 1 (CAM1 [CEACAM1]) mediates homophilic cell adhesion and regulates signaling. Although there is evidence that CEACAM1 binds and activates SHP-1, SHP-2, and c-Src, knowledge about the mechanism of transmembrane signaling is lacking. To analyze the regulation of SHP-1/SHP-2/c-Src binding, we expressed various CFP/YFP-tagged CEACAM1 isoforms in epithelial cells. The supramolecular organization of CEACAM1 was examined by cross-linking, coclustering, coimmunoprecipitation, and fluorescence resonance energy transfer. SHP-1/SHP-2/c-Src binding was monitored by coimmunoprecipitation and phosphotyrosine-induced recruitment to CEACAM1-L in cellular monolayers. We find that trans-homophilic CEACAM1 binding induces cis-dimerization by an allosteric mechanism transmitted by the N-terminal immunoglobulin-like domain. The balance of SHP-2 and c-Src binding is dependent on the monomer/dimer equilibrium of CEACAM1-L and is regulated by trans-binding, whereas SHP-1 does not bind under physiological conditions. CEACAM1-L homodimer formation is reduced by coexpression of CEACAM1-S and modulated by antibody ligation. These data suggest that transmembrane signaling by CEACAM1 operates by alteration of the monomer/dimer equilibrium, which leads to changes in the SHP-2/c-Src-binding ratio.