Carnitine acetyltransferase (CAT) is present in mitochondria and peroxisomes of oleate-grown Saccharomyces cerevisiae. Both proteins are encoded by the same gene, YCAT, which encodes a protein with a mitochondrial targeting signal (MTS) at the N-terminus, and a peroxisomal targeting signal type 1 (PTS-1) at the C-terminus. Deletion of both motifs revealed the presence of an additional internal targeting sequence. Import of CAT via this internal signal was shown to be dependent on PAS10, a protein which is required for the import of PTS-1 containing proteins. An interaction of PAS10 with this internal targeting signal was demonstrated using the yeast two-hybrid technique. Expression of the YCAT gene behind a heterologous promoter resulted in loss of peroxisomal targeting, indicating that differential targeting is controlled at transcriptional or translational level. Determination of the 5'-ends of YCAT mRNAs revealed that YCAT transcripts initiating after the first AUG were present in oleate-grown cells. These transcripts were virtually absent in acetate- or glycerol-grown cells. We propose that in response to oleate, shorter transcripts are produced from which the peroxisomal form of CAT is translated, resulting in a CAT protein without a MTS, which can be targeted to peroxisomes.