Restoration of cell volume in the continued presence of osmotic stimuli is essential, particularly in hepatocytes, which swell upon nutrient uptake. Responses to swelling involve the Ca(2+)-dependent activation of K(+) channels, which promote fluid efflux to drive volume recovery; however, the channels involved in hepatocellular volume regulation have not been identified. We found that hypotonic exposure of HTC hepatoma cells evoked the opening of 50 pS K(+)-permeable channels, consistent with intermediate conductance (IK) channels. We isolated from rat liver and HTC cells a cDNA with sequence identity to the coding region of IK1. Swelling-activated currents were inhibited by transfection with a dominant interfering IK1 mutant. The IK channel blockers clotrimazole and TRAM-34 inhibited whole cell swelling-activated K(+) currents and volume recovery. To determine whether IK1 underwent volume-sensitive localization, we expressed a green fluorescent protein fusion of IK1 in HTC cells. The localization of IK1 was suggestive of distribution in lipid rafts. Consistent with this, there was a time-dependent increase in colocalization between IK1 and the lipid raft ganglioside GM1 on the plasma membrane, which subsequently decreased with volume recovery. Pharmacological disruption of lipid rafts altered the plasma membrane distribution of IK1 and inhibited volume recovery after hypotonic exposure. Collectively, these findings support the hypothesis that IK1 regulates compensatory responses to hepatocellular swelling and suggest that regulation of cell volume involves coordination of signaling from lipid rafts with IK1 function.