Translation initiation factor eIF4E forms eIF4E-eIF4G complex at the 5' cap of mRNA. This interaction can be inhibited by the family of 4E-binding proteins (4E-BP). In yeast Saccharomyces cerevisiae, two 4E-BPs, Caf20 and Eap1, compete with eIF4G for binding to eIF4E via the shared conserved interaction motif. In order to investigate the roles of Caf20 in gene-specific translational regulation and the formation of mRNA granules (P-bodies), we introduced substitution mutations, caf20-Y4A or caf20-L9A, in the eIF4E-binding motif for CAF20. Overexpression of the wild-type CAF20 showed an increased protein level of Ste12 transcription factor as well as highly developed P-body formation. However, 4E-binding site mutations of CAF20 led to a reduced number of P-body foci and decreased levels of Ste12 protein. The phenotypes of the caf20 deletion mutation were also analyzed, and we suggest that Caf20 plays a critical role in Ste12 protein expression and in the control of P-body formation.