Dynamin is the mammalian homologue to the Drosophila shibire gene product. Mutations in this 100-kD GTPase cause a pleiotropic defect in endocytosis. To further investigate its role, we generated stable HeLa cell lines expressing either wild-type dynamin or a mutant defective in GTP binding and hydrolysis driven by a tightly controlled, tetracycline- inducible promoter. Overexpression of wild-type dynamin had no effect. In contrast, coated pits failed to become constricted and coated vesicles failed to bud in cells overexpressing mutant dynamin so that endocytosis via both transferrin (Tfn) and EGF receptors was potently inhibited. Coated pit assembly, invagination, and the recruitment of receptors into coated pits were unaffected. Other vesicular transport pathways, including Tfn receptor recycling, Tfn receptor biosynthesis, and cathepsin D transport to lysosomes via Golgi-derived coated vesicles, were unaffected. Bulk fluid-phase uptake also continued at the same initial rates as wild type. EM immunolocalization showed that membrane-bound dynamin was specifically associated with clathrin-coated pits on the plasma membrane. Dynamin was also associated with isolated coated vesicles, suggesting that it plays a role in vesicle budding. Like the Drosophila shibire mutant, HeLa cells overexpressing mutant dynamin accumulated long tubules, many of which remained connected to the plasma membrane. We conclude that dynamin is specifically required for endocytic coated vesicle formation, and that its GTP binding and hydrolysis activities are required to form constricted coated pits and, subsequently, for coated vesicle budding.