Mutations in the polycystin proteins, PC-1 and PC-2, result in autosomal dominant polycystic kidney disease (ADPKD) and ultimately renal failure. PC-1 and PC-2 enrich on primary cilia, where they are thought to form a heteromeric ion channel complex. However, a functional understanding of the putative PC-1/PC-2 polycystin complex is lacking due to technical hurdles in reliably measuring its activity. Here we successfully reconstitute the PC-1/PC-2 complex in the plasma membrane of mammalian cells and show that it functions as an outwardly rectifying channel. Using both reconstituted and ciliary polycystin channels, we further show that a soluble fragment generated from the N-terminal extracellular domain of PC-1 functions as an intrinsic agonist that is necessary and sufficient for channel activation. We thus propose that autoproteolytic cleavage of the N-terminus of PC-1, a hotspot for ADPKD mutations, produces a soluble ligand in vivo. These findings establish a mechanistic framework for understanding the role of PC-1/PC-2 heteromers in ADPKD and suggest new therapeutic strategies that would expand upon the limited symptomatic treatments currently available for this progressive, terminal disease.