BACE1 is the β-secretase enzyme that initiates production of the β-amyloid peptide involved in Alzheimer disease. However, little is known about the functions of BACE1. BACE1-deficient mice exhibit mild but complex neurological phenotypes suggesting therapeutic BACE1 inhibition may not be completely free of mechanism-based side effects. Recently, we have reported that BACE1 null mice have axon guidance defects in olfactory sensory neuron projections to glomeruli in the olfactory bulb. Here, we show that BACE1 deficiency also causes an axon guidance defect in the hippocampus, a shortened and disorganized infrapyramidal bundle of the mossy fiber projection from the dentate gyrus to CA3. Although we observed that a classical axon guidance molecule, EphA4, was cleaved by BACE1 when co-expressed with BACE1 in HEK293 cells, we could find no evidence of BACE1 processing of EphA4 in the brain. Remarkably, we discovered that the axon guidance defects of BACE1(-/-) mice were strikingly similar to those of mice deficient in a recently identified BACE1 substrate, the neural cell adhesion molecule close homolog of L1 (CHL1) that is involved in neurite outgrowth. CHL1 undergoes BACE1-dependent processing in BACE1(+/+), but not BACE1(-/-), hippocampus, and olfactory bulb, indicating that CHL1 is a BACE1 substrate in vivo. Finally, BACE1 and CHL1 co-localize in the terminals of hippocampal mossy fibers, olfactory sensory neuron axons, and growth cones of primary hippocampal neurons. We conclude that BACE1(-/-) axon guidance defects are likely the result of abrogated BACE1 processing of CHL1 and that BACE1 deficiency produces a CHL1 loss-of-function phenotype. Our results imply the possibility that axon mis-targeting may occur in adult neurogenic and/or regenerating neurons as a result of chronic BACE1 inhibition and add a note of caution to BACE1 inhibitor development.