The role of small, hydrophobic peptides that are associated with ion pumps or channels is still poorly understood. By using the Xenopus oocyte as an expression system, we have characterized the structural and functional properties of the gamma peptide which co-purifies with Na,K-ATPase. Immuno-radiolabeling of epitope-tagged gamma subunits in intact oocytes and protease protection assays show that the gamma peptide is a type I membrane protein lacking a signal sequence and exposing the N-terminus to the extracytoplasmic side. Co-expression of the rat or Xenopus gamma subunit with various proteins in the oocyte reveals that it specifically associates only with isozymes of Na,K-ATPase. The gamma peptide does not influence the formation and cell surface expression of functional Na,K-ATPase alpha-beta complexes. On the other hand, the gamma peptide itself needs association with Na,K-ATPase in order to be stably expressed in the oocyte and to be transported efficiently to the plasma membrane. Gamma subunits do not associate with individual alpha or beta subunits but only interact with assembled, transport-competent alpha-beta complexes. Finally, electrophysiological measurements indicate that the gamma peptide modulates the K+ activation of Na,K pumps. These data document for the first time the membrane topology, the specificity of association and a potential functional role for the gamma subunit of Na,K-ATPase.