We have characterized a new CHO cell line (12-4) derived from a parental line, TRVb-1, that expresses the human transferrin receptor. This mutant belongs to the end2 complementation group of endocytosis mutants. Like other end2 mutants, the endosomes in 12-4 cells show a partial acidification defect. These cells internalize LDL and transferrin at 70% of the rate of parental cells and externalize transferrin at 55% of the parental rate (Johnson, L. S., J. F. Presley, J. C. Park, and T. E. McGraw. J. Cell Physiol. 1993). In this report, we have used fluorescence microscopy to determine which step in receptor trafficking is affected in the mutants. Transferrin is sorted from LDL and is delivered to a peri-centriolar recycling compartment at rates similar to parental cells. However, the rate constant for exit of transferrin from the recycling compartment in mutant cells is 0.025 min-1 vs 0.062 min-1 in the parental line. We also measured the trafficking of a bulk membrane marker, 6-[N-[7-nitrobenzo-2-oxa-1,3-diazol-4-yl]-amino]hexanoyl- sphingosylphosphorylcholine (C6-NBD-SM) that labels the exofacial side of the plasma membrane. C6-NBD-SM enters the same recycling compartment as transferrin, and it exits the recycling compartment at a rate of 0.060-0.065 min-1 in both parental and 12-4 cells. We conclude that bulk membrane flow in the recycling pathway of 12-4 cells is normal, but exit of transferrin from the recycling compartment is slowed due to retention in this compartment. Thus, in the mutant cell line the recycling compartment carries out a sorting function, retaining transferrin over bulk membrane.