In previous experiments it has been demonstrated that nerve growth factor (NGF), subsequent to its binding to specific membrane receptors, is internalized. Ultrastructurally, this internalized NGF is localized in membrane-confined compartments which ultimately fuse with lysosomes. The present experiments were designed, first, to evaluate whether a very small but functionally important portion of the internalized NGF might reach the free cytoplasm (and subsequently the nuclear chromatin) and might be responsible for the induction of choline acetyltransferase (ChAT) in PC12 cells. Second, we investigated whether a lysosomal proteolytic degradation product of NGF might act as a second messenger in the NGF-mediated ChAT induction. In one series of experiments, guinea pig erythrocyte ghosts, loaded with NGF (or NGF antibodies), fluorescein isothiocyanate-coupled bovine serum albumin, and/or horseradish peroxidase (HRP) were fused with PC12 pheochromocytoma cells. Electron microscopy showed that [125I]NGF and HRP reaction product were located throughout the cytoplasm and the nucleus but did not penetrate membrane compartments such as the endoplasmic reticulum, the Golgi complex, the perinuclear space, or mitochondria. Biochemically, NGF injected into the cytoplasm did not produce an induction of ChAT, whereas NGF acting via cell surface receptors resulted in a 2-fold increase in ChAT. Conversely, injection of NGF antibodies did not prevent the receptor-mediated ChAT induction. In a second series of experiments, the half-life of internalized NGF was increased from 40 min to 24 hr by the administration of leupeptin, a protease inhibitor which is accumulated in lysosomes. However, the NGF-mediated ChAT induction was not affected by this treatment. It is concluded that NGF itself does not act directly on cytoplasmic or nuclear target sites, nor is a proteolytic degradation product of NGF responsible for the NGF-mediated ChAT induction. Thus, NGF must act via a second messenger mechanism, the nature of which remains to be established.