Neurons secrete neuropeptides from dense core vesicles (DCVs) to modulate neuronal activity. Little is known about how neurons manage to differentially regulate the release of synaptic vesicles (SVs) and DCVs. To analyze this, we screened all Caenorhabditis elegans Rab GTPases and Tre2/Bub2/Cdc16 (TBC) domain containing GTPase-activating proteins (GAPs) for defects in DCV release from C. elegans motoneurons. rab-5 and rab-10 mutants show severe defects in DCV secretion, whereas SV exocytosis is unaffected. We identified TBC-2 and TBC-4 as putative GAPs for RAB-5 and RAB-10, respectively. Multiple Rabs and RabGAPs are typically organized in cascades that confer directionality to membrane-trafficking processes. We show here that the formation of release-competent DCVs requires a reciprocal exclusion cascade coupling RAB-5 and RAB-10, in which each of the two Rabs recruits the other's GAP molecule. This contributes to a separation of RAB-5 and RAB-10 domains at the Golgi-endosomal interface, which is lost when either of the two GAPs is inactivated. Taken together, our data suggest that RAB-5 and RAB-10 cooperate to locally exclude each other at an essential stage during DCV sorting.