Previous work has shown that mutation of the gene that encodes the microtubule motor subunit kinesin heavy chain (Khc) in Drosophila inhibits neuronal sodium channel activity, action potentials and neurotransmitter secretion. These physiological defects cause progressive distal paralysis in larvae. To identify the cellular defects that cause these phenotypes, larval nerves were studied by light and electron microscopy. The axons of Khc mutants develop dramatic focal swellings along their lengths. The swellings are packed with fast axonal transport cargoes including vesicles, synaptic membrane proteins, mitochondria and prelysosomal organelles, but not with slow axonal transport cargoes such as cytoskeletal elements. Khc mutations also impair the development of larval motor axon terminals, causing dystrophic morphology and marked reductions in synaptic bouton numbers. These observations suggest that as the concentration of maternally provided wild-type KHC decreases, axonal organelles transported by kinesin periodically stall. This causes organelle jams that disrupt retrograde as well as anterograde fast axonal transport, leading to defective action potentials, dystrophic terminals, reduced transmitter secretion and progressive distal paralysis. These phenotypes parallel the pathologies of some vertebrate motor neuron diseases, including some forms of amyotrophic lateral sclerosis (ALS), and suggest that impaired fast axonal transport is a key element in these diseases.