Axonal growth is essential for establishing neuronal circuits during brain development and for regenerative processes in the adult brain. Unfortunately, the extracellular signals controlling axonal growth are poorly understood. Here we report that a reduction in extracellular ATP levels by tissue-nonspecific alkaline phosphatase (TNAP) is essential for the development of neuritic processes by cultured hippocampal neurons. Selective blockade of TNAP activity with levamisole or specific TNAP knockdown with short hairpin RNA interference inhibited the growth and branching of principal axons, whereas addition of alkaline phosphatase (ALP) promoted axonal growth. Neither activation nor inhibition of adenosine receptors affected the axonal growth, excluding the contribution of extracellular adenosine as a potential hydrolysis product of extracellular ATP to the TNAP-mediated effects. TNAP was colocalized at axonal growth cones with ionotropic ATP receptors (P2X₇ receptor), whose activation inhibited axonal growth. Additional analyses suggested a close functional interrelation of TNAP and P2X₇ receptors whereby TNAP prevents P2X₇ receptor activation by hydrolyzing ATP in the immediate environment of the receptor. Furthermore inhibition of P2X₇ receptor reduced TNAP expression, whereas addition of ALP enhanced P2X₇ receptor expression. Our results demonstrate that TNAP, regulating both ligand availability and protein expression of P2X₇ receptor, is essential for axonal development.