The establishment of synaptic connections requires precise alignment of pre- and postsynaptic terminals. The glial cell line-derived neurotrophic factor (GDNF) receptor GFRalpha1 is enriched at pre- and postsynaptic compartments in hippocampal neurons, suggesting that it has a function in synapse formation. GDNF triggered trans-homophilic binding between GFRalpha1 molecules and cell adhesion between GFRalpha1-expressing cells. This represents the first example of a cell-cell interaction being mediated by a ligand-induced cell adhesion molecule (LICAM). In the presence of GDNF, ectopic GFRalpha1 induced localized presynaptic differentiation in hippocampal neurons, as visualized by clustering of vesicular proteins and neurotransmitter transporters, and by activity-dependent vesicle recycling. Presynaptic differentiation induced by GDNF was markedly reduced in neurons lacking GFRalpha1. Gdnf mutant mice showed reduced synaptic localization of presynaptic proteins and a marked decrease in the density of presynaptic puncta, indicating a role for GDNF signaling in hippocampal synaptogenesis in vivo. We propose that GFRalpha1 functions as a LICAM to establish precise synaptic contacts and induce presynaptic differentiation.