Epithelial renal collecting duct cells express multiple types of aquaporin (AQP) water channels in a polarized fashion. AQP2 is specifically targeted to the apical cell domain, whereas AQP3 and AQP4 are expressed on the basolateral membrane. It is crucial that these AQP variants are sorted to their proper polarized membrane domains, because correct AQP sorting enables efficient water transport. However, the molecular mechanisms involved in the polarized targeting and membrane trafficking of AQPs remain largely unknown. In the present study, we have examined the polarized trafficking and surface expression of AQP3 in Madin-Darby canine kidney type II (MDCKII) cells in an effort to identify the molecular determinants of polarized targeting specificity. When expressed in MDCKII cells, the majority of the exogenous wild-type AQP3 was found to be targeted to the basolateral membrane, consistent with its localization pattern in vivo. A potential sorting signal consisting of tyrosine- and dileucine-based motifs was subsequently identified in the AQP3 NH2 terminus. When mutations were introduced into this signaling region, the basolateral targeting of the resulting mutant AQP3 was disrupted and the mutant protein remained in the cytoplasm. AQP2-AQP3 chimeras were then generated in which the entire NH2 terminus of AQP2 was replaced with the AQP3 NH2 terminus. This chimeric protein was observed to be mislocalized constitutively in the basolateral membrane, and mutations in the AQP3 NH2-terminal sorting signal abolished this effect. On the basis of these results, we conclude that an NH2-terminal sorting signal mediates the basolateral targeting of AQP3.