We have used an in vitro endosome fusion assay, recombinant ARF, synthetic peptides, and guanosine 5'-3-O-(thio)triphosphate (GTP gamma S) to study the role of ARF during endocytosis. Previous work has shown that GTP gamma S stimulates in vitro endosome fusion in dilute cytosol (less than 0.5 mg/ml) but inhibits fusion in concentrated cytosol (greater than 1.0 mg/ml). Two peptides corresponding to the NH2-terminal 16 amino acids of human ARF1 and ARF4 blocked GTP gamma S stimulation of fusion in dilute cytosol and reversed GTP gamma S inhibition of fusion in concentrated cytosol. The addition of recombinant human ARF1 to endosomes in dilute or concentrated cytosol resulted in GTP gamma S-dependent inhibition of fusion. Only the myristoylated form of ARF inhibited fusion. The NH2-terminal ARF1 peptide reversed inhibition by recombinant ARF1. Preincubation experiments showed that endosomes could form an ARF-resistant intermediate during the fusion process. Western blot analysis revealed clathrin-coated vesicles extracted with detergent retained ARF. The results suggest that ARF is involved in both the stimulatory and inhibitory effects of GTP gamma S in dilute and concentrated cytosol, respectively. Furthermore, myristoylation, the NH2-terminal domain, and binding to GTP appear to be critical for ARF activity during an early prefusion step required for endocytosis.