PC12 cells are a nerve growth factor-responsive clone derived from a rat pheochromocytoma. Treatment with nerve growth factor causes the cells to differentiate. One of the hallmarks of this differentiation is the generation of neurites. PC12 cells contain both calpain I and calpain II; about 90% of the total calpain activity is due to calpain II. Treatment of the cells with nerve growth factor causes a time-dependent decrease in calpain activity, more than 50% being lost over a 5-day period. Both the decrease in calpain activity and the growth of neurites are reversible upon the removal of nerve growth factor from the cultures. Agents other than nerve growth factor that cause neurite outgrowth, such as fibroblast growth factor and dibutyryl cyclic AMP, also cause a decrease in calpain activity. Calpain levels, as detected with immunoblotting or immunohistochemistry, show no decrease. Removal of calpastatin, the endogenous inhibitor of the calpains, by phenyl-Sepharose chromatography increases the calpain activity of extracts from both control and nerve growth factor-treated cells and brings the activity in the extracts from treated cells up to the activity in those from controls. Calpastatin-containing fractions from extracts of nerve growth factor-treated cells inhibit more calpain activity than do comparable fractions from control cells. These studies suggest that nerve growth factor causes a decrease in the activity of calpain in morphologically differentiating PC12 cells by causing an increase in the activity of calpastatin.