The GTPase dynamin is essential for receptor-mediated endocytosis, but its function remains controversial. A domain of dynamin, termed the GTPase effector domain (GED), controls dynamin's high stimulated rates of GTP hydrolysis by functioning as an assembly-dependent GAP. Dyn(K694A) and dyn(R725A) carry point mutations within GED resulting in reduced assembly stimulated GTPase activity. Biotinylated transferrin is more rapidly sequestered from avidin in cells transiently overexpressing either of these two activating mutants (Sever, S., A.B. Muhlberg, and S.L. Schmid. 1999. Nature. 398:481–486), suggesting that early events in receptor-mediated endocytosis are accelerated. Using stage-specific assays and morphological analyses of stably transformed cells, we have identified which events in clathrin-coated vesicle formation are accelerated by the overexpression of dyn(K694A) and dyn(R725A). Both mutants accelerate the formation of constricted coated pits, which we identify as the rate limiting step in endocytosis. Surprisingly, overexpression of dyn(R725A), whose primary defect is in stimulated GTP hydrolysis, but not dyn(K694A), whose primary defect is in self-assembly, inhibited membrane fission leading to coated vesicle release. Together, our data support a model in which dynamin functions like a classical GTPase as a key regulator of clathrin-mediated endocytosis.