The principal cells of the collecting duct carry out two major tasks: concentration of urine and regulation of K+ homeostasis. Two water channels, AQP3 and AQP4, are expressed in the principal cell basolateral membrane. We propose that AQP4 participates in the regulation of K+ transport in the principal cells. K+ enters the cell via Na+, K+-ATPase-mediated transport in the basolateral membrane. The presence of K+ channels in this membrane permits some K+ recirculation, considered important for maintenance of membrane potential. Here we show that AQP4, but not AQP3, assembles with both Na+, K+-ATPase and an inwardly rectifying K+ channel Kir7.1. We hypothesize that AQP4, Na+, K+-ATPase and Kir7.1 form a K+-transporting microdomain and that AQP4 serves to maintain a favorable concentration gradient for K+ efflux into the diffusion-limited space within the deep infoldings in principal cell basal membrane. The hypothesis is tested in a mathematical model. The model predicts that the impact of AQP-mediated water transport on K+ transport is more significant if AQP water permeability is sensitive to fluctuations in extracellular K+ concentration ([K+]e). We measured water permeability of AQP4 expressed in a renal epithelial cell line and found that it is upregulated when [K+]e is increased to 8 mM, and downregulated when [K+]e is decreased to 1 mM. Studies in an oocyte system indicate that AQP4 does not possess a voltage or K+ sensor. Finally, we show that the expression of AQP4 in rat renal medulla is, in contrast to the expression of AQP2 and AQP3, resistant to changes in K+ intake. Our experimental data, together with the mathematical model, support the concept that AQP4 is involved in principal cell K+ transport processes.