It was recently shown that Bcl-2-associated athanogene 1 (BAG1) is a potent neuroprotectant as well as a marker of neuronal differentiation. Since there appears to exist an equilibrium within the cell between BAG1 binding to heat shock protein 70 (Hsp70) and BAG1 binding to Raf-1 kinase, we hypothesized that changing BAG1 binding characteristics might significantly alter BAG1 function. To this end, we compared rat CSM14.1 cells and human SHSY-5Y cells stably overexpressing full-length BAG1 or a deletion mutant (BAGDeltaC) no longer capable of binding to Hsp70. Using a novel yellow fluorescent protein-based foldase biosensor, we demonstrated an upregulation of chaperone in situ activity in cells overexpressing full-length BAG1 but not in cells overexpressing BAGDeltaC compared to wild-type cells. Interestingly, in contrast to the nuclear and cytosolic localizations of full-length BAG1, BAGDeltaC was expressed exclusively in the cytosol. Furthermore, cells expressing BAGDeltaC were no longer protected against cell death. However, they still showed accelerated neuronal differentiation. Together, these results suggest that BAG1-induced activation of Hsp70 is important for neuroprotectivity, while BAG1-dependent modulation of neuronal differentiation in vitro is not.