Bestrophins (VMD2, VMD2L1, VMD2L2, and VMD2L3) are a new family of anion channels. The mechanisms of their regulation are not yet well understood. Recently, we found that a domain (amino acids 356-364) in the C terminus of mouse VMD2L3 (mBest3) inhibited channel activity when it was expressed in HEK293 cells (Qu, Z., Cui, Y., and Hartzell, H. C. (2006) FEBS Lett. 580, 2141-2214). Here we show that this auto-inhibitory (AI) domain in mBest3 and human (h)Best3 is composed of seven critical residues, (356)IPSFLGS(362). Replacement of any residue (except Pro(357)) in the domain with alanine activated Cl(-) currents. Substitution of Pro(357) with other amino acids, especially phenylalanine, did activate currents. Membrane biotinylation demonstrated that nonfunctional mBest3 protein was trafficked to the plasma membrane, implying that the AI domain inhibited channel gating but not trafficking. mBest3-F359A and hBest3-G361A mutations induced outwardly rectifying currents, suggesting that the AI domain is associated with the channel pore or gating mechanism. Supporting this suggestion, the mBest3 AI domain was demonstrated to be located within a membrane-associated region. When the wild-type mBest3 C terminus (amino acids 292-669) was expressed in HEK293 cells, the protein was located mainly in the particulate fraction, but it became soluble when a sequence containing the AI domain was deleted (Delta353-404). There is an AI domain ((357)QPSFQGS(363)) in mouse VMD2L1 (mBest2) as well, but its inhibitory effect is competed by a downstream facilitatory sequence (amino acids 405-454). These results suggest that an auto-inhibitory mechanism in C termini may be universal among bestrophins investigated in the study.