During active beam experiments, the presence of high neutral densities at low altitudes and/or during thruster firings has been observed to modify the spacecraft charging and the properties of the beam. Two-dimensional (three velocity) electromagnetic particle simulations with ionizing collisions incorporated are used to investigate the modification of the beam-plasma interaction as the neutral density is increased. It is shown that when the spacecraft is uniformly immersed in a neutral cloud, most of the ionization is produced by direct ionization by the beam and its secondaries rather than via vehicle-induced or wave-induced ionization for the neutral densities considered. This ionization enhances the return current into the spacecraft with the spacecraft potential being reduced well below the beam energy when the collision period is shorter than the spacecraft charging time. Neutral densities of about 1011--1012 cm-3 are required to produce this reduction in the spacecraft potential for typical ionospheric and beam parameters. At these densities the beam is able to propagate away from the spacecraft with little distortion except in the case of thruster firings where the beam can be subjected to large space-charge oscillations near the boundaries of the neutral cloud. The ionization of neutrals in the beam region also modifies the wave emissions and spatial profile of return currents into the spacecraft, both of which tend to become localized to the beam region for high neutral densities. In the case where neutrals are not present in the beam region, for example, during a thruster firing away from the beam, most of the ionization is vehicle induced and higher neutral densities are required to produce the same reduction in spacecraft potential. ¿ Copyright 1990 by the American Geophysical Union