The role of the target cell in neurotrophin-induced modifications of glutamatergic synaptic transmission was examined in cultured hippocampal neurons. Brain-derived neurotrophic factor (BDNF) induced rapid and persistent potentiation of evoked glutamate release when the postsynaptic neuron was glutamatergic, or excitatory (E-->E), but not when it was GABAergic, or inhibitory (E-->1). This target-specific action of BDNF was also found at divergent outputs of a single presynaptic neuron innervating both glutamatergic and GABAergic neurons, suggesting that individual terminals can be independently modified. Surprisingly, BDNF increased the frequency of miniature postsynaptic currents at both E-->E and E-->I, although it had no effect on evoked currents at E-->I. Finally, potentiation by neurotrophin-3 (NT-3) was also target specific. The selective effect at E-->E suggests that retrograde signaling by the postsynaptic target cell endows a localized presynaptic action of neurotrophins.