In the thyroid, iodotyrosine dehalogenase acts on the mono and diiodotyrosines released during the hydrolysis of thyroglobulin to liberate iodide, which can then reenter the hormone-producing pathways. It has been reported that the deiodination of iodotyrosines occurs predominantly in the microsomes and is mediated by NADPH. Recently, two cDNAs, 7401- and 7513-base pairs long that encode proteins with a conserved nitroreductase domain were published in GenBank as iodotyrosine dehalogenase 1 (DEHAL1) and iodotyrosine dehalogenase 1B (DEHAL1B), respectively. We report here our investigation of the localization and activity of one of these isoforms, DEHAL1. DEHAL1 mRNA is highly expressed in the thyroid, is up-regulated by cAMP, and encodes a transmembrane protein that efficiently catalyzes the NADPH-dependent deiodination of mono (L-MIT) and diiodotyrosine (L-DIT), with greater activity vs. L-MIT. Iodotyrosine deiodinase was active in HEK293 cells transfected by DEHAL1 cDNA, but not in CHO cells. A fraction of DEHAL1 protein is exposed to the cell surface, as indicated by biotinylation experiments. Immunohistochemistry studies showed that DEHAL1 proteins accumulate at the apical pole of thyrocytes. Taken together, these findings indicate that the deiodination reaction occurs at the apical pole of the thyrocyte and is involved in a rapid iodide recycling process at and/or close to the organification site.