Transforming growth factor-alpha (TGF-alpha) is the major autocrine EGF receptor ligand in vivo. In polarized epithelial cells, proTGF-alpha is synthesized and then delivered to the basolateral cell surface. We previously reported that Naked2 interacts with basolateral sorting determinants in the cytoplasmic tail of a Golgi-processed form of TGF-alpha and that TGF-alpha is not detected at the basolateral surface of Madin-Darby canine kidney (MDCK) cells expressing myristoylation-deficient (G2A) Naked2. By high-resolution microscopy, we now show that wild-type, but not G2A, Naked2-associated vesicles fuse at the plasma membrane. We further demonstrate that Naked2-associated vesicles are delivered to the lower lateral membrane of polarized MDCK cells independent of mu1B adaptin. We identify a basolateral targeting segment within Naked2; residues 1-173 redirect NHERF-1 from the apical cytoplasm to the basolateral membrane, and internal deletion of residues 37-104 results in apical mislocalization of Naked2 and TGF-alpha. Short hairpin RNA knockdown of Naked2 leads to a dramatic reduction in the 16-kDa cell surface isoform of TGF-alpha and increased cytosolic TGF-alpha immunoreactivity. We propose that Naked2 acts as a cargo recognition and targeting (CaRT) protein to ensure proper delivery, tethering, and fusion of TGF-alpha-containing vesicles to a distinct region at the basolateral surface of polarized epithelial cells.