Previous work from our laboratory (Zinser, E., Paltauf, F., and Daum, G. (1993) J. Bacteriol. 175, 2853-2858) demonstrated steryl ester hydrolase activity in the plasma membrane of the yeast Saccharomyces cerevisiae. Here, we show that the gene product of YEH2/ YLR020c, which is homologous to several known mammalian steryl ester hydrolases, is the enzyme catalyzing this reaction. Deletion of yeast YEH2 led to complete loss of plasma membrane steryl ester hydrolase activity whereas overexpression of the gene resulted in a significant elevation of the activity. Purification of enzymatically active Yeh2p close to homogeneity unambiguously identified this protein as a steryl ester hydrolase and thus as the first enzyme of this kind characterized in S. cerevisiae. In addition to evidence obtained in vitro experiments in vivo contributed to the characterization of this novel enzyme. Sterol analysis of yeh2⌬ unveiled a slightly elevated level of zymosterol suggesting that the esterified form of this sterol precursor is a preferred substrate of Yeh2p. However, in strains bearing hybrid proteins with strongly enhanced Yeh2p activity decreased levels of all steryl esters were observed. Thus, it appears that Yeh2p activity is not restricted to distinct steryl esters but rather has broad substrate specificity. The fact that in a yeh2⌬ deletion strain bulk steryl ester mobilization occurred at a similar rate as in wild type suggested that Yeh2p is not the only steryl ester hydrolase but that other enzymes with overlapping function exist in the yeast.Most eukaryotic cells contain and synthesize sterols, which are essential lipid components of membranes. Besides their role in maintaining membrane permeability and fluidity, effects of sterols on aerobic metabolism (1, 2), completion of the cell cycle (3) as well as on sterol uptake (4) and sterol transport (5) have been described. Considering the different functions of sterols it is obvious that sterol homeostasis, including sterol biosynthesis, uptake, transport, storage, utilization, and efflux, has to be a strictly regulated process. Specific sterols present in different eukaryotic cells vary, ergosterol being the major sterol in the yeast Saccharomyces cerevisiae.Besides other regulatory mechanisms esterification of sterols and hydrolysis of steryl esters (STE) 1 play an important role in cellular sterol homeostasis. These processes do not only allow cells to store chemical energy, which can be used in times of deprivation, but also provide an additional means to balance the concentrations of free sterols and fatty acids, which are essential and critical for cell structure and function. In mammalian cells esterification of sterols is catalyzed either by lecithin:cholesteryl acyltransferase (reviewed in Refs. 6 -8) or by the two acyl-CoA:cholesteryl acyltransferases ACAT1 and ACAT2 (reviewed in Ref. 9). Cholesteryl ester hydrolysis occurs by a number of mammalian enzymes many of which have already been identified, among them carboxyl ester lipase (CEL), lysosomal acid lipase...