The mechanism by which vasopressin rapidly and dramatically increases the water permeability of target epithelial cell membranes is thought to involve a cycle of exo- and endocytosis during which vesicles carrying 'water channels' are successively inserted into, and removed from the apical plasma membrane of epithelial cells. Clusters of intramembranous particles, visible by freeze-fracture electron microscopy and presumed to represent water channels, appear on apical membranes in parallel with increased transepithelial water flow. In the collecting duct, these clusters are located in clathrin-coated pits which are subsequently internalized. There has been no direct evidence, however, that subcellular membranes in vasopressin-sensitive epithelia contain functional water channels. In this report, we have used fluorophores that are sensitive to volume and do not pass through membranes to label and to measure directly the osmotic water permeability of endocytosed vesicles isolated from renal papilla. We present direct evidence that vasopressin induces the appearance of a population of endocytic vesicles whose limiting membranes contain water channels.