To investigate the mechanism of assembly of the mouse muscle acetylcholine receptor, we have expressed truncated N-terminal fragments of the alpha and delta subunits in COS cells and have examined their ability to fold, to associate into heterodimers, and to form a ligand-binding site. Truncated fragments of the alpha subunit that include all, part, or none of the first transmembrane domain (M1) folded to acquire alpha-bungarotoxin binding activity. Neither the full-length alpha subunit nor any of the fragments were expressed on the cell surface, although the shortest folded fragment lacking a transmembrane domain was secreted into the medium. When coexpressed with the delta subunit, the alpha subunit fragment possessing M1 formed a heterodimer containing a ligand-binding site, but shorter fragments, which lack transmembrane segments, did not associate with the delta subunit. N-terminal delta subunit fragments gave similar results. An N-terminal delta subunit fragment that contains M1 associated with the alpha subunit to form a heterodimer, while a fragment lacking M1 did not. These results show that a complete M1 domain is necessary for association of truncated N-terminal alpha and delta subunits into a heterodimer with high affinity ligand binding activity.