Nerve growth factor (NGF) induces neurite outgrowth and differentiation in a process that involves NGF binding to its receptor TrkA and endocytosis of the NGF-TrkA complex into signaling endosomes. Here, we find that biogenesis of signaling endosomes requires inactivation of Rab5 to block early endosome fusion. Expression of dominant-negative Rab5 mutants enhanced NGF-mediated neurite outgrowth, whereas a constitutively active Rab5 mutant or Rabex-5 inhibited this process. Consistently, inactivation of Rab5 sustained TrkA activation on the endosomes. Furthermore, NGF treatment rapidly decreased cellular level of active Rab5-GTP, as shown by pull-down assays. This Rab5 down-regulation was mediated by RabGAP5, which was shown to associate with TrkA by coimmunoprecipitation assays. Importantly, RNA interference of RabGAP5 as well as a RabGAP5 truncation mutant containing the TrkA-binding domain blocked NGF-mediated neurite outgrowth, indicating a requirement for RabGAP5 in this process. Thus, NGF signaling down-regulates Rab5 activity via RabGAP5 to facilitate neurite outgrowth and differentiation.