Glycosylphosphatidylinositol (GPI)-anchored proteins are cell surface-localized proteins that serve many important cellular functions. The pathway mediating synthesis and attachment of the GPI anchor to these proteins in eukaryotic cells is complex, highly conserved, and plays a critical role in the proper targeting, transport, and function of all GPI-anchored protein family members. In this article, we demonstrate that MCD4, an essential gene that was initially identified in a genetic screen to isolate Saccharomyces cerevisiae mutants defective for bud emergence, encodes a previously unidentified component of the GPI anchor synthesis pathway. Mcd4p is a multimembrane-spanning protein that localizes to the endoplasmic reticulum (ER) and contains a large NH2-terminal ER lumenal domain. We have also cloned the human MCD4 gene and found that Mcd4p is both highly conserved throughout eukaryotes and has two yeast homologues. Mcd4p's lumenal domain contains three conserved motifs found in mammalian phosphodiesterases and nucleotide pyrophosphases; notably, the temperature-conditional MCD4 allele used for our studies (mcd4-174) harbors a single amino acid change in motif 2. The mcd4-174 mutant (1) is defective in ER-to-Golgi transport of GPI-anchored proteins (i.e., Gas1p) while other proteins (i.e., CPY) are unaffected; (2) secretes and releases (potentially up-regulated cell wall) proteins into the medium, suggesting a defect in cell wall integrity; and (3) exhibits marked morphological defects, most notably the accumulation of distorted, ER- and vesicle-like membranes. mcd4-174 cells synthesize all classes of inositolphosphoceramides, indicating that the GPI protein transport block is not due to deficient ceramide synthesis. However, mcd4-174 cells have a severe defect in incorporation of [3H]inositol into proteins and accumulate several previously uncharacterized [3H]inositol-labeled lipids whose properties are consistent with their being GPI precursors. Together, these studies demonstrate that MCD4 encodes a new, conserved component of the GPI anchor synthesis pathway and highlight the intimate connections between GPI anchoring, bud emergence, cell wall function, and feedback mechanisms likely to be involved in regulating each of these essential processes. A putative role for Mcd4p as participating in the modification of GPI anchors with side chain phosphoethanolamine is also discussed.