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The characteristics of dislocation-related leakage current paths in an AlGaN/GaN heterostructure grown by molecular-beam epitaxy and their mitigation by local surface modification have been investigated using conductive atomic force microscopy. When a voltage is applied between the tip in an atomic force microscope (AFM) and the sample, a thin insulating layer is formed in the vicinity of the leakage paths where current is observed. As the insulating layer reaches a thickness of 2–3 nm, the leakage current is blocked and subsequent growth of the layer is prevented. Although conductive screw or mixed dislocations are observed, dislocations with a screw component that do not conduct current are also apparent. The reverse-bias leakage current is reduced by a factor of two in a large-area diode fabricated on an area modified in this manner with an AFM compared to typical diodes fabricated on unmodified areas with comparable series resistances, confirming that dislocation-related leakage current paths are a major component of the reverse-bias leakage current in Schottky diodes fabricated on nitride material. © 2002 American Institute of Physics.