Aquaporin-3 (AQP3) is unique in its structure (lowest homology with other aquaporins) and in its function (significantly conductive to both small nonelectrolytes and water). However, there is a controversy among researchers on its water transport and induction by dehydration. We examined its localization and the effect of dehydration on its expression in the kidney, as well as its water channel activity when expressed in Xenopus oocytes. In vitro translation using reticulocyte lysate revealed that the size of rat AQP3 was 26 kDa, and the band shifted to around 31 kDa with microsomal fraction, which was sensitive to the digestion with N-glycosidase F. In Western blot analysis of rat kidney medulla, AQP3 appeared as a sharp band at 27 kDa and a broad band at 34-40 kDa. In immunohistochemistry, AQP3 was localized to principal cells and absent in intercalated cells in outer medulla. In inner medulla, AQP3 was restricted to inner medullary collecting duct (IMCD) cells. AQP3 was confined to the basolateral membrane of these cells. Although dehydration of rats for 2 days did not change the distribution pattern of AQP3 in IMCD cells, the dehydration increased AQP3 mRNA by twofold with slight increase of its protein level in kidney medulla. Finally, we confirmed its water channel activity when expressed in Xenopus oocytes. The human AQP3 stimulated osmotic water permeability by eightfold, which was inhibited by 0.3 mM mercury chloride by 34% and reversed by beta-mercaptoethanol. Our results indicate that AQP3 is a glycosylated protein and a mercury-sensitive water channel localized at the basolateral membrane of principal cells and IMCD cells, and its expression is induced by dehydration at both protein and mRNA level.