Human familial neurohypophyseal diabetes insipidus (FNDI) is an autosomal dominant endocrine disorder that presents in early childhood as excessive drinking and urination as a consequence of a progressive loss of secretion of vasopressin (VP) from posterior pituitary nerve terminals. Mutations in the VP gene have been implicated as the cause of FNDI, but the mechanisms by which these mutants manifest their pathology, and prevent the secretion of the co‐expressed wild‐type protein, are unknown. One hypothesis suggests that mutant precursors are toxic, and stop the synthesis of wild‐type VP by killing expressing cells. Another hypothesis suggests that aberrant interactions between mutant and wild‐type precursors might directly inhibit the elaboration or secretion of the products of the normal allele. We have tested these hypotheses using new animal models‐‐transgenic rats that express an FNDI mutant VP gene that encodes a truncated precursor (Cys67stop). Cell‐specific and inducible expression of the Cys67stop mutation in rat VP hypothalamic neurons does not result in cell death or atrophy. Rather, expression of the FNDI mutant causes a neuronal pathology characterized by distorted structures in the cell body that are labeled by antisera that recognize endoplasmic reticulum (ER) markers, and that accumulate both mutant and wild‐type VP gene products. This is accompanied by an increase in the abundance of the mannose‐6‐phosphate receptor (MPR), a marker of endosome‐lysosome activity. We suggest that FNDI in humans may be initiated, as in our transgenic rat model, by the trapping of wild‐type VP gene products within an ER, which is targeted for lysosomal degradation by autophagy.