Na+/H+ exchangers catalyze the electrically silent countertransport of Na+ and H+, controlling the transmembrane movement of salt, water, and acid-base equivalents, and are therefore critical for Na+ tolerance, cell volume control, and pH regulation. In contrast to numerous well studied plasma membrane isoforms (NHE1-4), much less is known about intracellular Na+/H+ exchangers, and thus far no vertebrate isoform has been shown to have an exclusively endosomal distribution. In this context, we show that the yeast NHE homologue, Nhx1 (Nass, R., Cunningham, K. W., and Rao, R. (1997) J. Biol. Chem. 272, 26145-26152), localizes uniquely to prevacuolar compartments, equivalent to late endosomes of animal cells. In living yeast, we show that these compartments closely abut the vacuolar membrane in a striking bipolar distribution, suggesting that vacuole biogenesis occurs at distinct sites. Nhx1 is the founding member of a newly emergent cluster of exchanger homologues, from yeasts, worms, and humans that may share a common intracellular localization. By compartmentalizing Na+, intracellular exchangers play an important role in halotolerance; furthermore, we hypothesize that salt and water movement into vesicles may regulate vesicle volume and pH and thus contribute to vacuole biogenesis.