Heparin-binding growth-associated molecule (HB-GAM) is a cell surface- and extracellular matrix-associated protein that lines developing axon-s in vivo and promotes neurite outgrowth in vitro. Because JV-syndecan (syndecan-3) was found to function as a receptor in HB-GAM-induced neurite outgrowth, we have now studied whether the heparan sulfate side chains of Nsyndecan play a role in HB-GAM-neuron interactions. JV-Syndecan from postnatal rat brain was found to inhibit HB-GAM-induced but not laminin-induced neurite outgrowth when added to the assay media. The inhibitory activity was abolished by treating JV-syndecan with heparitinase, but it was retained in N-syndecan-derived free glycosaminoglycan chains, suggesting that N-syndecan heparan sulfate at the cell surface is involved in HB-GAM-induced neurite outgrowth. Binding to HB-GAM and inhibition of neurite outgrowth was observed with heparin-related polysaccharides only; galactosaminoglycans were inactive. Significant inhibition of neurite outgrowth was induced by heparin and by N-syndecan heparan sulfate but not by heparan sulfates from other sources. A minimum of 10 monosaccharide residues were required for HB-GAM binding, as well as for inhibition of HB-GAM-induced neurite outgrowth. Experiments with selectively desulfated heparins indicated that 2-O-sulfated iduronic acid units, in particular, are of importance to the interaction with HB-GAM, whereas glucosamine JV-sulfate and 6-O-sulfate groups were implicated to a lesser extent. Structural analysis of JV-syndecan from 6-day-old rat brain indicated that the heparan sulfate chains contain sequences of contiguous, N-sulfated disaccharide units with an unusually high proportion (82%) of 2-O-sulfated iduronic acid residues. We suggest that this property of N-syndecan heparan sulfate is essential for HJB-GAM binding and induction of neurite outgrowth.