The SDYQRL motif of the cytoplasmic domain of TGN38 is involved in targeting TGN38 from endosomes to the TGN. To create a system for studying this pathway, we replaced the native transferrin receptor (TR) internalization motif (YTRF) with the SDYQRL TGN-targeting motif. The advantages of using TR as a reporter molecule include the ability to monitor trafficking, in both biochemical and microscopy experiments, using the natural ligand transferrin. When expressed in CHO cells, the SDYQRL-TR construct accumulated in juxtanuclear tubules and vesicles that are in the vicinity of the TGN. The SDYQRL-TR-containing structures, however, do not colocalize with TGN markers (e.g., NBD ceramide), and therefore the SDYQRL motif is not sufficient to target the TR to the TGN. The morphology of the SDYQRL-TR-containing juxtanuclear structures is different from the recycling compartment found in cells expressing the wild-type TR. In addition, the SDYQRL-TR-containing juxtanuclear compartment is more acidic than the recycling compartment in cells expressing the wild-type TR. The juxtanuclear compartment, however, is a bona fide recycling compartment since SDYQRL-TR was recycled back to the cell surface at a rate comparable to the wild-type TR, and sphingomyelin and cellubrevin, both of which label all compartments of the endocytic recycling pathway, colocalize with SDYQRL-TR in the juxtanuclear structures. These findings demonstrate that expression of the SDYQRL-TR construct alters the morphology and pH of endocytic recycling compartments rather than selectively affecting the intracellular trafficking pathway of the SDYQRL-TR construct. Therefore, the SDYQRL trafficking motif is not simply a molecular address that targets proteins to the TGN, but it can play an active role in determining the physical characteristics of endosomal compartments.