It has long been known that under intracellular conditions vasopressin associates tightly to neurophysin, which is present in the same prohormone. As the association has been suggested to play a role during hormone biosynthesis, its role was studied in a cellular context by expressing mutant vasopressin precursors in Neuro2A cells. Mutant vasopressin precursors, in which the association between the vasopressin and neurophysin domains was prevented either by deleting the vasopressin domain from the precursor or by substitution of the essential Tyr2 residue in vasopressin for Gly, were neither processed nor targeted into secretory granules. Rather, both provasopressin mutants were retained in the endoplasmic reticulum. Our results demonstrate that the vasopressin domain is crucial for correct trafficking of the prohormone through the secretory pathway, and suggest that vasopressin-neurophysin association provides correct prohormone folding in the endoplasmic reticulum.