Neurons receive information from other neurons via their dendritic tree. Dendrites and their branches result from alternating outgrowth and retraction. The Rho GTPases Rac and Cdc42 (cell division cycle 42) facilitate the outgrowth of branches, whereas Rho attenuates it. The mechanism of neurite retraction is unknown. Because the adenylyl cyclase activator forskolin causes numerous branched extensions in NG108-15 cells, we have investigated the underlying mechanism in this cell line. In additional studies, we used cultured hippocampal neurons in which forskolin induces branched dendrites. In both cell types, forskolin enhanced the activity of Cdc42, but not that of Rac, although both GTPases were necessary for the formation of branched extensions. Time lapse microscopy showed that forskolin did not increase the rate of addition of new extensions or branches, but it reduced the rate of the retraction so that more branched extensions persisted. Inhibition of phosphoinositide 3-kinase activity by wortmannin or LY294002 also reduced the rate of retraction and thus facilitated dendritic arborization. Forskolin diminished the activity of phosphoinositide 3-kinases. Inhibitors of phosphoinositide 3-kinases not only reduced the retraction but also the addition of new dendrites and branches. This reduction was no longer present when Rho kinase was simultaneously inactivated, suggesting an interaction of phosphoinositide 3-kinases and Rho kinase. The present results show a central role of phosphoinositide 3-kinases in dendrite formation. In neuronal cells, increased levels of cAMP can support dendritic arborization by modulating the activity of the lipid kinase.