MHC class II molecules expressed in T2 cells fail to acquire a normal complement of endocytically generated peptides. The defect is repaired by introducing HLA-DMA and HLA-DMB cDNA expression vectors, determined by the restoration of SDS stability of class II af3 dimers, restoration of a normal conformation for HLA-DR3 as detected by a monoclonal antibody, and by a reduction in class II-associated invariant chain peptides. The intracellular distribution of class II and invariant chain molecules is also restored to that of wild-type cells. The HLA-DMA and HLA-DMB products appear to form a heterodimer that, although transported at least to the medial Golgi, is not expressed at the ceil surface. These findings are consistent with HLA-DM functioning intracellularly to facilitate class II-restricted antigen processing.