An algorithm of predicting the subcellular location of prokaryotic proteins is proposed in this paper. In addition to the amino acid composition, the auto-correlation functions based on the hydrophobicity profile of amino acids along the primary sequence of the query protein have been used. Consequently, the best predictive accuracy to date has been achieved. Of the 997 prokaryotic proteins in the database used here, 688 cytoplasmic, 107 extracellular and 202 periplasmic proteins, the overall predictive accuracies are as high as 97.7 and 90.4% in the resubstitution and jackknife tests, respectively, using the hydrophilicity value of Hopp and Woods. The underlying mechanism of the improvement is also discussed. This work would be useful for a systematic analysis of the great amounts of prokaryotic genome sequences. The computer programs used in this paper are available on request via email.