The ATP-sensitive potassium channel (K(ATP)) regulates insulin secretion in pancreatic beta cells. Loss of functional K(ATP) channels because of mutations in either the SUR1 or Kir6.2 channel subunit causes persistent hyperinsulinemic hypoglycemia of infancy (PHHI). We investigated the molecular mechanism by which a single phenylalanine deletion in SUR1 (DeltaF1388) causes PHHI. Previous studies have shown that coexpression of DeltaF1388 SUR1 with Kir6.2 results in no channel activity. We demonstrate here that the lack of functional expression is due to failure of the mutant channel to traffic to the cell surface. Trafficking of K(ATP) channels requires that the endoplasmic reticulum-retention signal, RKR, present in both SUR1 and Kir6.2, be shielded during channel assembly. To ask whether DeltaF1388 SUR1 forms functional channels with Kir6.2, we inactivated the RKR signal in DeltaF1388 SUR1 by mutation to AAA (DeltaF1388 SUR1(AAA)). Inactivation of similar endoplasmic reticulum-retention signals in the cystic fibrosis transmembrane conductance regulator has been shown to partially overcome the trafficking defect of a cystic fibrosis transmembrane conductance regulator mutation, DeltaF508. We found that coexpression of DeltaF1388 SUR1(AAA) with Kir6.2 led to partial surface expression of the mutant channel. Moreover, mutant channels were active. Compared with wild-type channels, the mutant channels have reduced ATP sensitivity and do not respond to stimulation by MgADP or diazoxide. The RKR --> AAA mutation alone has no effect on channel properties. Our results establish defective trafficking of K(ATP) channels as a molecular basis of PHHI and show that F1388 in SUR1 is critical for normal trafficking and function of K(ATP) channels.