We have tested the hypothesis that familial neurohypophysial diabetes insipidus (FNDI) is initiated by a process of autophagy. FNDI is a dominant, progressive inherited disorder characterized by pronounced drinking and urination caused by loss of secretion of antidiuretic hormone (vasopressin). In rats expressing an FNDI mutant transgene (Cys67stop) in vasopressin magnocellular neurones, the mutant protein fails to enter the regulated secretory pathway, and accumulates in a swollen and distended endoplasmic reticulum (ER) that also contains wild‐type, endogenous vasopressin. Transmission electron microscopy suggested that these are autophagic vesicles. We have now examined the expression of vesicular markers in our transgenic rats, and demonstrate that activation of autolysosomal processes is a consequence of the expression of Cys67stop. Swollen vesicles containing Cys67stop are immunoreactive for cathepsin D (a lysosomal protease), endolyn (a marker of late endosomes) and lysosomal associated membrane protein 1, suggesting that they may be degradative autolysosomes. In addition, there is an up‐regulation of lysosomal markers specifically in cells expressing Cys67stop. The expression of Cys67stop affects neither the trans‐Golgi network nor early endosomes. These data support the proposal that Cys67stop mutant protein aggregates within the ER, which is targeted for lysosomal degradation by autophagy.