Neuronal injury elicits potent cellular responses from glia, but molecular pathways modulating glial activation, phagocytic function and termination of reactive responses remain poorly defined. Here we show that positive or negative regulation of glial responses to axon injury is molecularly encoded by unique isoforms of the Drosophila melanogaster engulfment receptor Draper. Draper-I promotes engulfment of axonal debris through an immunoreceptor tyrosine-based activation motif (ITAM). In contrast, Draper-II, an alternative splice variant, potently inhibits glial engulfment function. Draper-II suppresses Draper-I signaling through a previously undescribed immunoreceptor tyrosine-based inhibitory motif (ITIM)-like domain and the tyrosine phosphatase Corkscrew (Csw). Intriguingly, loss of Draper-II-Csw signaling prolongs expression of glial engulfment genes after axotomy and reduces the ability of glia to respond to secondary axotomy. Our work highlights a novel role for Draper-II in inhibiting glial responses to neurodegeneration, and indicates that a balance of opposing Draper-I and Draper-II signaling events is essential to maintain glial sensitivity to brain injury.