Stp1p and Stp2p are homologous and redundant transcription factors that are synthesized as latent cytoplasmic proteins with N-terminal regulatory domains. In response to extracellular amino acids, the plasma membrane-localized Ssy1p-Ptr3p-Ssy5p (SPS) sensor induces an endoproteolytic processing event that cleaves away the N-terminal regulatory domains. The shorter forms of Stp1p and Stp2p are targeted to the nucleus, where they bind and activate the transcription of amino acid permease genes. A novel genetic screen, specifically designed to search for rare mutations that affect the SPS-sensing pathway, identified the F-box protein Grr1p as an obligatory factor required for Stp1p/Stp2p processing. Additionally, we have found that a null mutation in the ASI1 (amino acid sensor-independent) gene enables full-length unprocessed Stp1p/Stp2p to enter the nucleus and derepress SPS sensor-dependent genes. The N-terminal domains of Stp1p/Stp2p contain two conserved motifs that are required for proper nuclear exclusion and proteolytic processing. These motifs function in parallel; mutations that abolish processing inhibit signaling, whereas mutations that interfere with cytoplasmic retention result in constitutive derepression of SPS sensor-regulated genes independently of processing. The N-terminal domain of Stp1p is functionally autonomous and transferable to other transcription factors, where its presence confers ASI1-dependent nuclear exclusion and SPS sensor-induced proteolytic processing.All cells have the capacity to sense and respond to extracellular environmental cues by changing patterns of gene expression. Eukaryotic cells can regulate patterns of gene expression simply by controlling the movement of transcription factors across the nuclear envelope. For example, cells can synthesize transcription factors as latent forms that are excluded from entering the nucleus and, in response to discrete environmental cues, activate processes that induce their nuclear targeting. Several latent transcription factors that transfer regulatory information from the plasma membrane to the nucleus in metazoan cells have been described (9). Regulated latent transcription factors involved in signal transduction include the well-studied NF-B/Relish, Cubitus interruptus, and Notch proteins (4,5,20). In such instances, nuclear targeting not only is used to provide signals necessary for the correct timing of gene regulation but also provides the means to physically transfer signals from nonnuclear compartments to specific promoter sequences.Fundamental to understanding regulated latent transcription factors is the elucidation of the mechanisms that direct these proteins to change compartments in a controlled fashion. This change may be achieved through a protein modification that regulates the activity of intrinsic nuclear localization determinants; nuclear localization sequences (NLS) are sequence motifs recognized by the nuclear import machinery and, in the opposing manner, nuclear export sequences (NES) are sequence motifs that medi...