Anhidrotic ectodermal dysplasia (EDA) is a human genetic disorder of impaired ectodermal appendage development. The EDA gene encodes isoforms of a novel transmembrane protein, ectodysplasin. The sequence of the longest isoform includes an interrupted collagenous domain of 19 Gly-X-Y repeats and a motif conserved in the tumor necrosis factor (TNF)-related ligand family. In order to understand better the function of the ectodysplasin protein molecule and its domains, we have studied the processing and localization of wild-type and mutated isoforms in transfected human fetal kidney 293 and monkey kidney COS-1 cells. Similar to other members of collagenous membrane proteins and members of TNF-related ligands, ectodysplasin is a type II membrane protein and it forms trimers. The membrane localization of ectodysplasin is asymmetrical: it is found on the apical and lateral surfaces of the cells where it co-localizes with cytoskeletal structures. The TNF-like motif and cysteines found near the C-terminus are necessary for correct transport to the cell membrane, but the intracellular and collagenous domains are not required for the localization pattern. Our results suggest that ectodysplasin is a new member in the TNF-related ligand family involved in the early epithelial-mesenchymal interaction that regulates ectodermal appendage formation.