TRPML3 (mucolipin‐3) belongs to one of the transient‐receptor‐potential (TRP) ion channel families. Mutations in the Trpml3 gene cause disorganization of the stereociliary hair bundle, structural aberrations in outer and inner hair cells and stria vascularis defects, leading to deafness in the varitint‐waddler (Va) mouse. Here we refined the stereociliary localization of TRPML3 and investigated cochlear hair cell function in varitint‐waddler (VaJ) mice carrying the TRPML3<I362T/A419P> mutations. Using a TRPML3‐specific antibody we detected a ∼68 kDa protein with near‐equal expression levels in cochlea and vestibule of wild‐type and VaJ mutants. At postnatal days 3 and 5, we observed abundant localization of TRPML3 at the base of stereocilia near the position of the ankle links. This stereociliary localization domain was absent in VaJ heterozygotes and homozygotes. Electrophysiological recordings revealed reduced mechano‐electrical transducer currents in hair cells from VaJ/+ and VaJ/VaJ mice. Furthermore, FM1‐43 uptake and [3H]gentamicin accumulation were decreased in hair cells in cultured organs of Corti from VaJ/+ and VaJ/VaJ mice. We propose that TRPML3 plays a critical role at the ankle‐link region during hair‐bundle growth and that an adverse effect of mutant TRPML3 on bundle development and mechano‐electrical transduction is the main cause of hearing loss in VaJ/+ mutant mice. Outer hair cells of VaJ/VaJ mice additionally had depolarized resting potentials due to an inwardly rectifying leak conductance formed by the mutant channels, leading over time to hair‐cell degeneration and contributing to their deafness. Our findings argue against TRPML3 being a component of the hair‐cell transducer channel.