Intracellularly expressed antibody fragments have found various applications in therapy by virtue of their ability to inhibit the function of cellular proteins or interfere with subcellular trafficking. Bivalent antibody fragments might further improve this inhibitory potential by increasing the functional affinity and bispecific antibody fragments may also be useful for the intracellular retargeting of molecules. Here, we have evaluated the functional expression of intracellular diabodies. A previously constructed secreted bispecific single-chain diabody directed against carcinoembryonic antigen and Escherichia coli beta-galactosidase was modified for subcellular targeting to the cell surface membrane, endoplasmic reticulum, mitochondria, cytoplasm, and nucleus. Subcellular localisation was analysed by immunofluorescence, and the assembly of functional antibodies was analysed by binding of beta-galactosidase to the antibody fragment and subsequent substrate conversion. Bispecific single-chain diabodies could be directed to all subcellular compartments analysed. However, functional assembly was only observed for single-chain diabodies retained in the endoplasmic reticulum or displayed in the cell membrane while no antigen binding activity was seen with diabodies directed to the cytoplasm, nucleus, or mitochondria. The results demonstrate the functional expression of bispecific recombinant antibody fragments in the secretory pathway and integration into the plasma membrane of mammalian cells.