Dipeptide inhibitors of the ubiquitin-dependent proteolysis pathway governed by N-terminal recognition (N-end rule) in reticulocyte lysates significantly suppress NGF- and bFGF-induced neurite outgrowth in rat pheochromocytoma PC12 cells, but do not cause retraction of already formed neurites. Peptides which do not inhibit proteolysis are also without effect on PC12 cell differentiation. Suppression of neurite outgrowth is readily reversible upon removal of the inhibitors. These data demonstrate a requirement for specific protein turnover in the process of neuron-like differentiation in PC12 cells and provide the first demonstration of a physiological role for the N-end rule.