Ubiquinone (coenzyme Q or Q) is a lipid that functions in the electron transport chain in the inner mitochondrial membrane of eukaryotes and the plasma membrane of prokaryotes. Q-deficient mutants of Saccharomyces cerevisiae harbor defects in one of eight COQ genes (coq1-coq8) and are unable to grow on nonfermentable carbon sources. The biosynthesis of Q involves two separate O-methylation steps. In yeast, the first O-methylation utilizes 3, 4-dihydroxy-5-hexaprenylbenzoic acid as a substrate and is thought to be catalyzed by Coq3p, a 32.7-kDa protein that is 40% identical to the Escherichia coli O-methyltransferase, UbiG. In this study, farnesylated analogs corresponding to the second O-methylation step, demethyl-Q(3) and Q(3), have been chemically synthesized and used to study Q biosynthesis in yeast mitochondria in vitro. Both yeast and rat Coq3p recognize the demethyl-Q(3) precursor as a substrate. In addition, E. coli UbiGp was purified and found to catalyze both O-methylation steps. Futhermore, antibodies to yeast Coq3p were used to determine that the Coq3 polypeptide is peripherally associated with the matrix-side of the inner membrane of yeast mitochondria. The results indicate that one O-methyltransferase catalyzes both steps in Q biosynthesis in eukaryotes and prokaryotes and that Q biosynthesis is carried out within the matrix compartment of yeast mitochondria.