Btn2p, a novel coiled-coil protein, is up-regulated in btn1⌬ yeast strains, and this up-regulation is thought to contribute to maintaining a stable vacuolar pH in btn1⌬ strains (D. A. Pearce, T. Ferea, S. A. Nosel, B. Das, and F. Sherman, Nat. Genet. 22:55-58, 1999). We now report that Btn2p interacts biochemically and functionally with Rsg1p, a down-regulator of the Can1p arginine and lysine permease. Rsg1p localizes to a distinct structure toward the cell periphery, and strains lacking Btn2p (btn2⌬ strains) fail to correctly localize Rsg1p. btn2⌬ strains, like rsg1⌬ strains, are sensitive for growth in the presence of the arginine analog canavanine. Furthermore, btn2⌬ strains, like rsg1⌬ strains, demonstrate an elevated rate of uptake of [ 14 C]arginine, which leads to increased intracellular levels of arginine. Overexpression of BTN2 results in a decreased rate of arginine uptake. Collectively, these results indicate that altered levels of Btn2p can modulate arginine uptake through localization of the Can1p-arginine permease regulatory protein, Rsg1p. Our original identification of Btn2p was that it is up-regulated in the btn1⌬ strain which serves as a model for the lysosomal storage disorder Batten disease. Btn1p is a vacuolar/lysosomal membrane protein, and btn1⌬ suppresses both the canavanine sensitivity and the elevated rate of uptake of arginine displayed by btn2⌬ rsg1⌬ strains. We conclude that Btn2p interacts with Rsg1p and modulates arginine uptake. Up-regulation of BTN2 expression in btn1⌬ strains may facilitate either a direct or indirect effect on intracellular arginine levels.