We have compared the intracellular transport and subcellular distribution of MHC class II-invariant chain complexes in a wild-type HLA-DR3 homozygous cell line and a mutant cell line, T2.DR3. The latter has a defect in antigen processing and accumulates HLA-DR3 molecules associated with an invariant chain-derived peptide (CLIP) rather than the normal complement of peptides derived from endocytosed proteins. We find that in the wild-type cells, CLIP is transiently associated with HLA-DR3 molecules, suggesting that the peptide is a normal class II-associated intermediate generated during proteolysis of the invariant chain. In the mutant cell line proteolysis of the invariant chain is less efficient, and HLA-DR3/CLIP complexes are generated much more slowly. Examination of the mutant cell line by immunoelectronmicroscopy shows that class II-invariant chain complexes accumulate intracellularly in large acidic vesicles which contain lysosomal markers, including beta-hexosaminidase, cathepsin D, and the lysosomal membrane protein CD63. The markers in these vesicles are identical to those seen in the class II-containing vesicles (MIICs) seen in the wild-type cells but the morphology is drastically different. The vesicles in the mutant cells are endocytic, as measured by the internalization of BSA-gold conjugates. The implication of these findings for antigen processing in general and the nature of the mutation in particular are discussed.