Reactive oxygen species (ROS) are mediators of intracellular signals for a myriad of normal and pathologic cellular events, including differentiation, hypertrophy, proliferation, and apoptosis. NADPH oxidases are important sources of ROS that are present in diverse tissues throughout the body and activate many redox-sensitive signal transduction and gene expression pathways. To avoid toxicity and provide specificity of signaling, ROS production and metabolism necessitate tight regulation that likely includes subcellular compartmentalization. However, the constituent elements of NADPH oxidase-dependent cell signaling are not known. To address this issue, we examined cytokine generation of ROS and subsequent activation of the transcription factor nuclear factor kappaB in vascular smooth muscle cells (SMCs). Tumor necrosis factor-alpha and interleukin (IL)-1beta stimulation of SMCs resulted in diphenylene iodonium-sensitive ROS production within intracellular vesicles. Nox1 and p22(phox), integral membrane subunits of NADPH oxidase, coimmunoprecipitated with early endosomal markers in SMCs. ClC-3, an anion transporter that is primarily found in intracellular vesicles, also colocalized with Nox1 in early endosomes and was necessary for tumor necrosis factor-alpha and interleukin-1beta generation of ROS. Cytokine activation of nuclear factor kappaB in SMCs required both Nox1 and ClC-3. We conclude that in response to tumor necrosis factor-alpha and interleukin-1beta, NADPH oxidase generates ROS within early endosomes and that Nox1 cannot produce sufficient ROS for cell signaling in the absence of ClC-3. These data best support a model whereby ClC-3 is required for charge neutralization of the electron flow generated by Nox1 across the membrane of signaling endosomes.