Saccharomyces cerevisiae strains carrying vps18 mutations are defective in the sorting and transport of vacuolar enzymes. The precursor forms of these proteins are missorted and secreted from the mutant cells. Most vps18 mutants are temperature sensitive for growth and are defective in vacuole biogenesis; no structure resembling a normal vacuole is seen. A plasmid complementing the temperature-sensitive growth defect of strains carrying the vps18-4 allele was isolated from a centromere-based yeast genomic library. Integrative mapping experiments indicated that the 26-kb insert in this plasmid was derived from the VPS18 locus. A 4-kb minimal complementing fragment contains a single long open reading frame predicted to encode a 918-amino-acid hydrophilic protein. Comparison of the VPS18 sequence with the PEP3 sequence reported in the accompanying paper (R. A. Preston, H. F. Manolson, K. Becherer, E. Weidenhammer, D. Kirkpatrick, R. Wright, and E. W. Jones, Mol. Cell. Biol. 11:5801-5812, 1991) shows that the two genes are identical. Disruption of the VPS18/PEP3 gene (vps18 delta 1::TRP1) is not lethal but results in the same vacuolar protein sorting and growth defects exhibited by the original temperature-sensitive vps18 alleles. In addition, vps18 delta 1::TRP1 MAT alpha strains exhibit a defect in the Kex2p-dependent processing of the secreted pheromone alpha-factor. This finding suggests that vps18 mutations alter the function of a late Golgi compartment which contains Kex2p and in which vacuolar proteins are thought to be sorted from proteins destined for the cell surface. The Vps18p sequence contains a cysteine-rich, zinc finger-like motif at the COOH terminus. A mutant in which the first cysteine of this motif was changed to serine results in a temperature-conditional carboxypeptidase Y sorting defect shortly after a shift to nonpermissive conditions. We identified a similar cysteine-rich motif near the COOH terminus of another Vps protein, the Vps11/Pep5/End1 protein. Preston et al. (Mol. Cell. Biol. 11:5801-5812, 1991) present evidence that the Vps18/Pep3 protein colocalizes with the Vps11/Pep5 protein to the cytosolic face of the vacuolar membrane. Together with the similar phenotypes exhibited by both vps11 and vps18 mutants, this finding suggests that they may function at a common step during vacuolar protein sorting and that the integrity of their zinc finger motifs may be required for this function.