HFE, the protein mutated in hereditary haemochromatosis type 1, is known to interact with the transferrin receptor (TfR) on the cell surface and during endocytosis [Gross, Irrinki, Feder and Enns (1998) J. Biol. Chem. 273, 22068-22074; Roy, Penny, Feder and Enns (1999) J. Biol. Chem. 274, 9022-9028]. However, whether they are capable of interacting with each other once inside the cell is not known. In the present study we present several lines of evidence that they do interact in endosome compartments. Cells expressing a chimaera of HFE protein with the cytoplasmic domain of lysosomal-associated membrane protein 1 (LAMP1) in place of its own (HFE-LAMP) show a decrease in the half-life of the TfR. This implies that the interaction between HFE and TfR in endosomes targets the TfR to lysosomal compartments. The interaction between TfR and HFE-LAMP was confirmed by immunoprecipitation, in addition to immunofluorescence studies. Addition of transferrin (Tf) to HFE-LAMP-expressing cells competes with HFE for binding to the TfR, thereby increasing the half-life of TfR and confirming that the HFE-LAMP-TfR complex reaches the cell surface prior to entering the endosomal vesicles and trafficking to the lysosome. These results raise the possibility that interaction of HFE and TfR in intracellular vesicles may play an important role in determining the function of HFE in iron homoeostasis, which is still unknown. Analysis of endosomal pH and the iron content of internalized Tf indicated that HFE does not appear to alter the unloading of iron from Tf in the endosome.