Xenopus laevis oocytes were used as a model system to study the intracellular fate of proteins incorporated by endocytosis. We found that the intracellular stability and compartmentation of proteins incorporated by receptor-mediated endocytosis differed substantially from that of proteins incorporated by nonspecific endocytosis. After its uptake, the specifically sequestered yolk precursor protein vitellogenin was converted to the yolk proteins lipovitellin and phosvitin which were stable with time (up to 13 days in culture). In contrast, nonspecifically incorporated albumin (125I-labeled or 3H-labeled bovine serum albumin) was rapidly degraded. To determine whether the differential stability of these proteins was related to their entry into different postendocytotic compartments, we examined the intracellular transfer pathways taken by these proteins. The transfer of vitellogenin from coated vesicles to the yolk platelets was found to involve a secondary compartment formed by the fusion of the incoming endosomes. This compartment, termed transitional yolk bodies (TYB), underwent a progressive condensation until it attained its terminal density (1.21 g/cm3) after approximately 1.5 hr. The fusion of the TYB with the yolk platelets then occurred coincidentally with the time at which vitellogenin was proteolytically processed into the yolk proteins within the TYB. When the proteolytic cleavage of vitellogenin was blocked there was no fusion of the two compartments. In contrast, we found that albumin incorporated in the absence of vitellogenin was directly transferred from endosomes to yolk platelets without the formation of, or fusion with a secondary compartment. However, when oocytes were exposed simultaneously to albumin and vitellogenin both proteins followed identical routes of compartmentation (that of vitellogenin) with no evidence of direct transfer of either protein to the yolk platelets. These results suggest that the incorporation of a specifically bound ligand can result in the formation of a unique intracellular compartment. Moreover, since yolk platelets were able to fuse only with vesicles lacking occupied receptors (in the case of albumin alone) or with a compartment in which the specific ligand had been proteolytically cleaved and presumably released from its receptor (in the case of VTG), we suggest that occupied receptors can act as a transmembrane signal which directs the postendocytotic compartmentation of proteins.