Large parts of the endoplasmic reticulum of the yeast, Saccharomyces cerevisiae, are located close to intracellular organelles, i.e. mitochondria and the plasma membrane, as shown by fluorescence and electron microscopy. Here we report the isolation and characterization of the subfraction of the endoplasmic reticulum that is closely associated with the plasma membrane. This plasma membrane associated membrane (PAM) is characterized by its high capacity to synthesize phosphatidylserine and phosphatidylinositol. As such, PAM is reminiscent of MAM, a mitochondria associated membrane fraction of the yeast [Gaigg, B., Simbeni, R., Hrastnik, C., Paltauf, F. & Daum, G. (1995) Biochim. Biophys. Acta 1234, 214-220], although the specific activity of phosphatidylserine synthase and phosphatidylinositol synthase in PAM exceeds several-fold the activity in MAM and also in the bulk endoplasmic reticulum. In addition, several enzymes involved in ergosterol biosynthesis, namely squalene synthase (Erg9p), squalene epoxidase (Erg1p) and steroldelta24-methyltransferase (Erg6p), are highly enriched in PAM. A possible role of PAM in the supply of lipids to the plasma membrane is discussed.