p150^Glued is the major subunit of dynactin, a complex that functions with dynein in minus-end-directed microtubule transport. Mutations within the p150^Glued CAP-Gly microtubule-binding domain cause neurodegenerative diseases through an unclear mechanism. A p150^Glued motor neuron degenerative disease-associated mutation introduced into the Drosophila Glued locus generates a partial loss-of-function allele (Gl^G38S) with impaired neurotransmitter release and adult-onset locomotor dysfunction. Disruption of the p150^Glued CAP-Gly domain in neurons causes a specific disruption of vesicle trafficking at terminal boutons (TBs), the distal-most ends of synapses. Gl^G38S larvae accumulate endosomes along with dynein and kinesin motor proteins within swollen TBs, and genetic analyses show that kinesin and p150^Glued function cooperatively at TBs to coordinate transport. Therefore, the p150^Glued CAP-Gly domain regulates dynein-mediated retrograde transport at synaptic termini, and this function of dynactin is disrupted by a mutation that causes motor neuron disease.