Expression of the epithelial cell-specific heterotetrameric adaptor complex AP-1B is required for the polarized distribution of many membrane proteins to the basolateral surface of LLC-PK1 kidney cells. AP-1B is distinguished from the ubiquitously expressed AP-1A by exchange of its single 50-kD mu subunit, mu1A, being replaced by the closely related mu1B. Here we show that this substitution is sufficient to couple basolateral plasma membrane proteins, such as a low-density lipoprotein receptor (LDLR), to the AP-1B complex and to clathrin. The interaction between LDLR and AP-1B is likely to occur in the trans-Golgi network (TGN), as was suggested by the localization of functional, epitope-tagged mu1 by immunofluorescence and immunoelectron microscopy. Tagged AP-1A and AP-1B complexes were found in the perinuclear region close to the Golgi complex and recycling endosomes, often in clathrin-coated buds and vesicles. Yet, AP-1A and AP-1B localized to different subdomains of the TGN, with only AP-1A colocalizing with furin, a membrane protein that uses AP-1 to recycle between the TGN and endosomes. We conclude that AP-1B functions by interacting with its cargo molecules and clathrin in the TGN, where it acts to sort basolateral proteins from proteins destined for the apical surface and from those selected by AP-1A for transport to endosomes and lysosomes.