The collagen-binding receptor tyrosine kinase DDR1 (discoidin domain receptor 1) is a drug target for a wide range of human diseases, but the molecular mechanism of DDR1 activation is poorly defined. Here we co-expressed different types of signalling-incompetent DDR1 mutants ('receiver') with functional DDR1 ('donor') and demonstrate phosphorylation of receiver DDR1 by donor DDR1 in response to collagen. Making use of enforced covalent DDR1 dimerisation, which does not affect receptor function, we show that receiver dimers are phosphorylated in trans by the donor; this process requires the kinase activity of the donor but not that of the receiver. The receiver ectodomain is not required, but phosphorylation in trans is abolished by mutation of the transmembrane domain. Finally, we show that mutant DDR1 that cannot bind collagen is recruited into DDR1 signalling clusters. Our results support an activation mechanism whereby collagen induces lateral association of DDR1 dimers and phosphorylation between dimers.