Endocytosis and intracellular processing of transferrin (Tf) and Tf receptors were examined in rat reticulocytes. Subcellular fractionation revealed that Tf enters a non-lysosomal endocytic compartment with a density between those of plasma membrane and lysosomes. After 20 min of uptake at (37 degrees C) 35 to 40% of cell-associated Tf was contained in this intermediate-density compartment. To test the fidelity of colloidal gold-Tf (AuTf) as a probe for Tf processing, reticulocytes were fractionated after uptake of 131I-Tf and 125I-AuTf. The subcellular distributions of the two ligands were indistinguishable by this method, a result suggesting that AuTf is processed similarly to Tf. Electron microscopy revealed that AuTf entered multivesicular endosomes (MVEs) as well as various small vesicles and tubular structures. In addition MVE exocytosis was observed with discharge of inclusion vesicles and associated AuTf. AuTf was bound to the outside of these vesicles both before and after exocytosis. These data suggest that Tf receptors are shed from developing reticulocytes by incorporation into the limiting membrane of inclusion vesicles, followed by discharge of these vesicles by MVE exocytosis. As further evidence of this process, we isolated inclusion vesicles after their discharge and found them to contain Tf receptors. Moreover, the rate of Tf receptor shedding by inclusion vesicle discharge matches Tf receptor loss rates closely enough to suggest that this is the primary path of receptor loss during reticulocyte development.