Although abnormal processing of beta-amyloid precursor protein (APP) has been implicated in the pathogenic cascade leading to Alzheimer's disease, the normal function of this protein is poorly understood. To gain insight into APP function, we used a molecular-genetic approach to manipulate the structure and levels of the Drosophila APP homolog APPL. Wild-type and mutant forms of APPL were expressed in motoneurons to determine the effect of APPL at the neuromuscular junction (NMJ). We show that APPL was transported to motor axons and that its overexpression caused a dramatic increase in synaptic bouton number and changes in synapse structure. In an Appl null mutant, a decrease in the number of boutons was found. Examination of NMJs in larvae overexpressing APPL revealed that the extra boutons had normal synaptic components and thus were likely to form functional synaptic contacts. Deletion analysis demonstrated that APPL sequences responsible for synaptic alteration reside in the cytoplasmic domain, at the internalization sequence GYENPTY and a putative G(o)-protein binding site. To determine the likely mechanisms underlying APPL-dependent synapse formation, hyperexcitable mutants, which also alter synaptic growth at the NMJ, were examined. These mutants with elevated neuronal activity changed the distribution of APPL at synapses and partially suppressed APPL-dependent synapse formation. We propose a model by which APPL, in conjunction with activity-dependent mechanisms, regulates synaptic structure and number.