Serotonin (5-HT) modulates two different responses in the pressure sensitive neurons (P) of the leech: an inhibitory, Cl- dependent synaptic response and a depolarizing extrasynaptic response. 2. Serotonergic Retzius cells (R) in vivo and in culture elicit inhibitory Cl- dependent responses in P neurons. Moreover, at discrete sites of contact between R and P cells, the excitatory response to 5-HT is gradually lost prior to synapse formation. This phenomenon is specifically mediated by R cells. 3. The extrasynaptic response is mediated by cation channels sensitive to protein kinase C (PKC). Cation channels are present at the sites of contact but they become insensitive to PKC. Moreover, cation channels from single P cells are no longer modulated by PKC if they are inserted (by cramming the patch pipette) into the cytoplasm of a P cell in contact with an R cell. 4. Blockers of tyrosine kinases prevent the uncoupling of cation channel modulation and inhibit synapse formation between the R and the P neurons. 5. We suggest that cell contact induces an intracellular, tyrosine kinase-dependent signal as part of the mechanism of neuronal recognition leading to synapse formation.