It was recently shown that Bcl-2-associated athanogene 1 (BAG1) is a potent neuroprotectant as well as a marker of neuronal differentiation. Since there appears to exist an equilibrium within the cell between BAG1 binding to heat shock protein 70 (Hsp70) and BAG1 binding to Raf-1 kinase, we hypothesized that changing BAG1 binding characteristics might significantly alter BAG1 function. To this end, we compared rat CSM14.1 cells and human SHSY-5Y cells stably overexpressing full-length BAG1 or a deletion mutant (BAG⌬C) no longer capable of binding to Hsp70. Using a novel yellow fluorescent protein-based foldase biosensor, we demonstrated an upregulation of chaperone in situ activity in cells overexpressing full-length BAG1 but not in cells overexpressing BAG⌬C compared to wild-type cells. Interestingly, in contrast to the nuclear and cytosolic localizations of full-length BAG1, BAG⌬C was expressed exclusively in the cytosol. Furthermore, cells expressing BAG⌬C were no longer protected against cell death. However, they still showed accelerated neuronal differentiation. Together, these results suggest that BAG1-induced activation of Hsp70 is important for neuroprotectivity, while BAG1-dependent modulation of neuronal differentiation in vitro is not.