Peb1 is a peroxisome biogenesis mutant isolated in Saccharomyces cerevisiae that is selectively defective in the import of thiolase into peroxisomes but has a normal ability to package catalase, luciferase and acyl-CoA oxidase (Zhang, J. W., C. Luckey, and P. B. Lazarow. 1993. Mol. Biol. Cell. 4:1351-1359). Thiolase differs from these other peroxisomal proteins in that it is targeted by an NH2-terminal, 16-amino acid peroxisomal targeting sequence type 2 (PTS 2). This phenotype suggests that the PEB1 protein might function as a receptor for the PTS2. The PEB1 gene has been cloned by functional complementation. It encodes a 42,320-D, hydrophilic protein with no predicted transmembrane segment. It contains six WD repeats that comprise the entire protein except for the first 55 amino acids. Peb1p was tagged with hemagglutinin epitopes and determined to be exclusively within peroxisomes by digitonin permeabilization, immunofluorescence, protease protection and immuno-electron microscopy (Zhang, J. W., and P. B. Lazarow. 1995. J. Cell Biol. 129:65-80). Peb1p is identical to Pas7p (Marzioch, M., R. Erdmann, M. Veenhuis, and W.-H. Kunau. 1994. EMBO J. 13: 4908-4917). We have now tested whether Peb1p interacts with the PTS2 of thiolase. With the two-hybrid assay, we observed a strong interaction between Peb1p and thiolase that was abolished by deleting the first 16 amino acids of thiolase. An oligopeptide consisting of the first 16 amino acids of thiolase was sufficient for the affinity binding of Peb1p. Binding was reduced by the replacement of leucine with arginine at residue five, a change that is known to reduce thiolase targeting in vivo. Finally, a thiolase-Peb1p complex was isolated by immunoprecipitation. To investigate the topogenesis of Peb1p, its first 56-amino acid residues were fused in front of truncated thiolase lacking the NH2-terminal 16-amino acid PTS2. The fusion protein was expressed in a thiolase knockout strain. Equilibrium density centrifugation and immunofluorescence indicated that the fusion protein was located in peroxisomes. Deletion of residues 6-55 from native Peb1p resulted in a cytosolic location and the loss of function. Thus the NH2-terminal 56-amino acid residues of Peb1p are necessary and sufficient for peroxisomal targeting. Peb1p is found in peroxisomes whether thiolase is expressed or not. These results suggest that Peb1p (Pas7p) is an intraperoxisomal receptor for the type 2 peroxisomal targeting signal.