We have previously shown a conserved glutamate/dileucine motif ((335)ELRSLL(340)) in the intracellular C terminus of the vasopressin V(2) receptor (V(2) receptor) to be essential for receptor transport from the endoplasmic reticulum (ER) to the Golgi apparatus. The motif may represent a transport signal that is recognized by a component of ER to Golgi vesicles. Alternatively, it may be necessary for transport-competent receptor folding to pass the quality-control system of the ER. To assess these two possibilities, we constructed a receptor fragment that allows transport studies independent of full-length receptor folding. Transmembrane domains II-VII were deleted, thereby fusing the intracellular C terminus to the first cytoplasmic loop. The mutations that impaired transport of the full-length receptor were introduced, and receptor fragments were localized in transiently transfected HEK 293 cells. All mutant receptor fragments were detectable at the plasma membrane, demonstrating that the glutamate/dileucine motif does not function as a small, linear vesicular transport signal. Instead, our data strongly suggest that this motif is required for transport-competent folding of the full-length receptor. To assess the underlying conformational features, a three-dimensional homology model of the V(2) receptor was computed. Our model predicts that the glutamate/dileucine motif contributes to a U-like loop within the intracellular C terminus. Residue Leu(339) may be required for folding back the intracellular C terminus to residue Leu(62) of the first cytoplasmic loop. We characterized the naturally occurring L62P and DeltaL62-R64 mutations in the first cytoplasmic loop and show that they lead to transport-defective full-length V(2) receptors that are retained in the ER, consistent with the structure model.