The internalization of surface-bound diphtheria toxin (DT) in BS-C-1 cells correlated with its appearance in intracellular endosomal vesicles; essentially no toxin appeared within secondary lysosomal vesicles. In contrast, internalized epidermal growth factor (EGF) was localized within both endosomal and lysosomal vesicles. Upon preincubation of cells with leupeptin, a lysosomal protease inhibitor, a threefold increase in the accumulation of EGF into lysosomes was observed. Under identical conditions, essentially all of the diphtheria toxin remained within endosomes (less than 2% of the intracellular diphtheria toxin accumulated in the lysosomal fraction), indicating that the inability to detect diphtheria toxin in lysosomes was not due to its rapid turnover within this vesicle. Following internalization of EGF or DT, up to 40% of the ligand appeared in the medium as TCA-soluble radioactivity. EGF degradation was partially leupeptin-sensitive and markedly NH4Cl-sensitive, indicating lysosomal degradation. In contrast, DT A-fragment degradation was resistant to these inhibitors, while B-fragment showed only partial sensitivity. These data suggest that the bulk of endocytosed diphtheria toxin is localized within endosomes and degraded by a pathway essentially independent of lysosomes.