Formation of small vesicles resembling synaptic vesicles can be reconstituted in vitro by incubating labeled homogenates of PC12 cells with ATP and two cytoplasmic proteins, AP3 and ARF1 [Faúndez, V., Horng, J.-T. & Kelly, R. B. (1998) Cell 93, 423-432]. To determine whether AP3 was mediating budding from plasma membranes or endosomes the organelle that generated the synaptic vesicles was characterized. The budding activity was enriched in organelles that labeled at 15 degrees C, but not at 4 degrees C, that excluded a marker of plasma membranes and that contained internalized transferrin, indicating that the precursor was an endosome. Vesicles formed from the endosomal precursor in vitro excluded transferrin. We conclude that ARF-mediated vesiculation into synaptic vesicle-sized organelles uses an endosomal precursor and occurs simultaneously in vitro with sorting of synaptic vesicle proteins from other membrane protein constituents of the endosome.