We studied the role played by the intracellular COOH-terminal region of the human arginine vasopressin (AVP) V₁-vascular receptor (V₁R) in ligand binding, trafficking, and mitogenic signal transduction in Chinese hamster ovary cells stably transfected with the human AVP receptor cDNA clones that we had isolated previously. Truncations, mutations, or chimeric alterations of the V₁R COOH terminus did not alter ligand binding, but agonist-induced V₁R internalization and recycling were reduced in the absence of the proximal region of the V₁R COOH terminus. Coupling to phospholipase C was altered as a function of the COOH-terminal length. Deletion of the proximal portion of the V₁R COOH terminus or its replacement by the V₂-renal receptor COOH terminus prevented AVP stimulation of DNA synthesis and progression through the cell cycle. Mutation of a kinase consensus motif in the proximal region of the V₁R COOH terminus also abolished the mitogenic response. Thus the V₁R cytoplasmic COOH terminus is not involved in ligand specificity but is instrumental in receptor trafficking and facilitates the interaction between the intracellular loops of the receptor, G protein, and phospholipase C. It is absolutely required for transmission of the mitogenic action of AVP, probably via a specific kinase phosphorylation site.