The mu heavy chain has an unusually high content of hydroxyl-containing amino acids in its membrane-spanning region. We have examined the involvement of two of these hydrophilic residues in endoplasmic reticulum (ER) retention, interactions with Ig-alpha/Ig-beta, and transmembrane signaling. Neighboring tyrosine and serine residues were mutated to either phenylalanine and alanine (mutant YS/FA) or valine and valine (mutant YS/VV). Membrane Ig (mIgM) molecules containing these mutant mu chains were expressed on the surface of transfected B lymphoma cells. Anti-Ig-induced signaling by the YS/FA mutant mIgM was equivalent to wild-type (wt) mIgM, whereas signaling by the YS/VV mutant mIgM was notably diminished. Association between mutant YS/VV mIgM and Ig-alpha/Ig-beta was detectable but reduced in comparison to YS/FA or wt mIgM. Signaling by YS/VV mutant mIgM appeared to involve Ig-alpha/Ig-beta, because these proteins were tyrosine phosphorylated on receptor cross-linking. When YS/VV and wt mu chains were cotransfected with light chains into nonlymphoid cells, mutant mIgM was expressed at the cell surface in the absence of Ig-alpha/Ig-beta, whereas wt mIgM was not. These data suggest that the mutated residues contribute to ER retention and directly or indirectly to association with Ig-alpha/Ig-beta. Moreover, ER retention can be disrupted without preventing functional association with Ig-alpha/Ig-beta. In addition, these data indicate that the hydroxyl groups of the mutated residues are not required for functional association between mu and Ig-alpha/Ig-beta because their removal did not reduce the ability of the YS/FA mutant mIgM to associate with accessory proteins or to participate in signal transduction.