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.