Mutants of Saccharomyces cerevisiae which lack the KEX2-encoded endopeptidase are unable to process proteolytically the mating factor alpha (MF alpha) propheromone produced from the chromosomal MF alpha 1 and MF alpha 2 genes (Julius et al., 1983). Overproduction of pheromone precursor from multiple, plasmid-borne MF alpha genes did, however, lead to the production of active MF alpha peptides in the absence of the KEX2 gene product. S. cerevisiae therefore must possess an alternative processing enzyme. The cleavage site of this enzyme appeared identical to that of the KEX2-encoded endopeptidase. To identify the gene responsible for the alternative processing, we have isolated clones which allowed production of mature MF alpha in a kex2-disrupted strain even from the chromosomal MF alpha genes. The gene isolated in this way was shown also to be essential for the KEX2-independent processing of propheromone overproduced from plasmid-borne MF alpha 1. The amino acid sequence deduced from the gene shows extensive homology to a number of aspartyl proteases including the PEP4 and BAR1 gene products from S. cerevisiae. In contrast to the BAR1 gene product, the novel aspartyl protease (YAP3 for Yeast Aspartyl Protease 3) contains a C-terminal serine/threonine-rich sequence and potential transmembrane domain similar to those found in the KEX2 gene product. The corresponding gene YAP3 was located to chromosome XII. The normal physiological role of the YAP3 gene product is not known. Strains disrupted in YAP3 are both viable and able to process the mating factor a precursor.