MHC class II molecules and invariant chain assemble at a neutral pH in the endoplasmic reticulum and are transported to a low pH compartment where the invariant chain is trimmed to the class II-associated invariant chain peptide (CLIP). For many major histocompatibility complex class II molecules, DM is required for rapid removal of CLIP, which allows binding of antigenic peptides. Since I-Ag7 confers susceptibility to type I diabetes in NOD mice, the biochemical requirements for peptide loading were examined using soluble I-Ag7 expressed in insect cells. I-Ag7 formed long-lived complexes with naturally processed peptides from transferrin and albumin, whereas several peptides that represent T cell epitopes of islet autoantigens were poor binders. I-Ag7-peptide complexes were not sodium dodecyl sulfate (SDS) resistant, indicating that SDS sensitivity may be an intrinsic property of I-Ag7. Complexes of I-Ag7 and CLIP formed at a neutral pH, but rapidly dissociated at pH 5. This rapid dissociation was due to a poor fit of M98 of CLIP in the P9 pocket of I-Ag7, since substitution of M98 by a negatively charged residue greatly enhanced the stability of the complex. These biochemical properties of I-Ag7 result in the rapid generation of empty molecules at an endosomal pH and have a global effect on peptide binding by I-Ag7.