Persistent hyperinsulinemic hypoglycemia of infancy (PHHI) is a genetic disorder characterized by excess secretion of insulin and hypoglycemia. In most patients, the disease is caused by mutations in sulfonylurea receptor-1 (SUR1), which, in association with Kir6.2, constitutes the functional ATP-sensitive potassium (K(ATP)) channel of the pancreatic beta-cell. Previous studies reported that coexpression of the PHHI mutant R1394H-SUR1 with Kir6.2 in COS cells produces no functional channels. To investigate if the loss of function could be due to impaired trafficking of mutant channels to the cell membrane, we have cotransfected wild-type and mutant SUR1 subunits with Kir6.2 into HEK293 cells and examined their cellular localization by immunofluorescent staining. Our results show that unlike the wild-type subunits, which showed fluorescence at the cell surface, the mutant subunits displayed fluorescence in punctate structures. Co-immunostaining with antibodies against organelle-specific marker proteins identified these structures as the trans-Golgi network. Limited localization in clathrin-positive, but transferrin receptor-negative vesicles was also observed. The post-endoplasmic reticulum localization suggests that the mutation does not impair the folding and assembly of the channels so as to cause its retention by the endoplasmic reticulum. Diazoxide, a K(ATP) channel opener drug that is used in the treatment of PHHI, restored the surface expression in a manner that could be prevented by the channel blocker glibenclamide. When expressed in Xenopus oocytes, R1394H-SUR1 formed functional channels with Kir6.2, indicating that the primary consequence of the mutation is impairment of trafficking rather than function. Thus, our data uncover a novel mechanism underlying the therapeutic action of diazoxide in the treatment of PHHI, i.e. its ability to recruit channels to the membrane. Furthermore, this is the first report to describe a trafficking disorder effecting retention of mutant proteins in the trans-Golgi network.