We have investigated the signals between identified leech neurons during the formation of specific synapses in culture. At an inhibitory serotonergic synapse between two well-studied neurons, the postsynaptic cell has an additional (extrasynaptic) excitatory response to 5-HT which may underly a form of activity-dependent modulation. Thus, the presynaptic neuron must select which 5-HT response will be activated and which will be excluded at its synapses. The selection of these responses preceded synapse formation and was specifically induced at sites of contact with the presynaptic neuron, this not being observed for other cell pairings. Aldehyde-fixed presynaptic cells were equally effective, unless pre-treated with trypsin or wheat germ agglutinin, suggesting that contact with a specific cell-surface glycoprotein induced this physiological change in 5-HT sensitivity. The mechanism underlying the selective loss of the extrasynaptic response has been examined by single channel recording. Cation channels in the postsynaptic neuron were modulated by protein kinase C (PKC) upon binding of 5-HT to a 5-HT2 receptor. However, at sites of contact with the presynaptic neuron, the channels were no longer sensitive to PKC. Furthermore, when cation channels from uncontacted neurons were inserted or 'crammed' into contacted neurons, they were rapidly rendered insensitive to PKC, demonstrating a cytoplasmic signal for the uncoupling of channel modulation. Interestingly, the cytoplasm of contacted postsynaptic neurons showed immunoreactivity for tyrosine phosphorylation: exposure of the neurons to specific inhibitors of tyrosine kinases prevented tyrosine phosphorylation, the loss of cation channel modulation and synapse formation.(ABSTRACT TRUNCATED AT 250 WORDS)