The dystrophin-associated protein (DAP) complex spans the sarcolemmal membrane linking the cytoskeleton to the basement membrane surrounding each myofiber. Defects in the DAP complex have been linked previously to a variety of muscular dystrophies. Other evidence points to a role for the DAP complex in formation of nerve-muscle synapses. We show that myotubes differentiated from dystroglycan-/- embryonic stem cells are responsive to agrin, but produce acetylcholine receptor (AChR) clusters which are two to three times larger in area, about half as dense, and significantly less stable than those on dystroglycan+/+ myotubes. AChRs at neuromuscular junctions are similarly affected in dystroglycan-deficient chimeric mice and there is a coordinate increase in nerve terminal size at these junctions. In culture and in vivo the absence of dystroglycan disrupts the localization to AChR clusters of laminin, perlecan, and acetylcholinesterase (AChE), but not rapsyn or agrin. Treatment of myotubes in culture with laminin induces AChR clusters on dystroglycan+/+, but not -/- myotubes. These results suggest that dystroglycan is essential for the assembly of a synaptic basement membrane, most notably by localizing AChE through its binding to perlecan. In addition, they suggest that dystroglycan functions in the organization and stabilization of AChR clusters, which appear to be mediated through its binding of laminin.