Synaptic vesicles are synthesized at a rapid rate in nerve terminals to compensate for their rapid loss during neurotransmitter release. Their biogenesis involves endocytosis of synaptic vesicle membrane proteins from the plasma membrane and requires two steps, the segregation of synaptic vesicle membrane proteins from other cellular proteins, and the packaging of those unique proteins into vesicles of the correct size. By labeling an epitope-tagged variant of a synaptic vesicle protein, VAMP (synaptobrevin), at the cell surface of the neuroendocrine cell line PC12, synaptic vesicle biogenesis could be followed with considerable precision, quantitatively and kinetically. Epitope-tagged VAMP was recovered in synaptic vesicles within a few minutes of leaving the cell surface. More efficient targeting was obtained by using the VAMP mutant, del 61-70. Synaptic vesicles did not form at 15 degrees C although endocytosis still occurred. Synaptic vesicles could be generated in vitro from a homogenate of cells labeled at 15 degrees C. The newly formed vesicles are identical to those formed in vivo in their sedimentation characteristics, the presence of the synaptic vesicle protein synaptophysin, and the absence of detectable transferrin receptor. Brain, but not fibroblast cytosol, allows vesicles of the correct size to form. Vesicle formation is time and temperature-dependent, requires ATP, is calcium independent, and is inhibited by GTP-gamma S. Thus, two key steps in synaptic vesicle biogenesis have been reconstituted in vitro, allowing direct analysis of the proteins involved.