The mechanism by which the self-assembling GTPase dynamin functions in vesicle formation remains controversial. Point mutations in shibire, the Drosophila dynamin, cause temperature-sensitive (ts) defects in endocytosis. We show that the ts2 mutation, which occurs in the switch 2 region of dynamin's GTPase domain, compromises GTP binding affinity. Three second-site suppressor mutations, one in the switch 1 region of the GTPase domain and two in the GTPase effector domain (GED), dynamin's putative GAP, fully rescue the shi(ts2) defects in synaptic vesicle recycling. The functional rescue in vivo correlates with a reduction in both the basal and assembly-stimulated GTPase activity in vitro. These findings demonstrate that GED is indeed an internal dynamin GAP and establish that, as for other GTPase superfamily members, dynamin's function in vivo is negatively regulated by its GAP activity. Based on these and other observations, we propose a two-step model for dynamin during vesicle formation in which an early regulatory GTPase-like function precedes late, assembly-dependent steps during which GTP hydrolysis is required for vesicle release.