In arteries, muscarinic agonists such as acetylcholine release an unidentified, endothelium-derived hyperpolarizing factor (EDHF) which is neither prostacyclin nor nitric oxide. Here we show that EDHF-induced hyperpolarization of smooth muscle and relaxation of small resistance arteries are inhibited by ouabain plus Ba2+; ouabain is a blocker of Na+/K+ ATPase and Ba2+ blocks inwardly rectifying K+ channels. Small increases in the amount of extracellular K+ mimic these effects of EDHF in a ouabain- and Ba2+-sensitive, but endothelium-independent, manner. Acetylcholine hyperpolarizes endothelial cells and increases the K+ concentration in the myoendothelial space; these effects are abolished by charbdotoxin plus apamin. Hyperpolarization of smooth muscle by EDHF is also abolished by this toxin combination, but these toxins do not affect the hyperpolarizaiton of smooth muscle by added K+. These data show that EDHF is K+ that effluxes through charybdotoxin- and apamin-sensitive K+ channels on endothelial cells. The resulting increase in myoendothelial K+ concentration hyperpolarizes and relaxes adjacent smooth-muscle cells by activating Ba2+-sensitive K+ channels and Na+/K+ ATPase. These results show that fluctuations in K+ levels originating within the blood vessel itself are important in regulating mammalian blood pressure and flow.