Long-chain fatty acids are a vital metabolic energy source and are building blocks of membrane lipids. The yeast Saccharomyces cerevisiae is a valuable model system for elucidation of gene-function relationships in such eukaryotic processes as fatty acid metabolism. Yeast degrades fatty acids only in the peroxisome, and recently, genes encoding core and auxiliary enzymes of peroxisomal beta-oxidation have been identified. Mechanisms involved in fatty acid induction of gene expression have been described, and novel fatty acid-responsive genes have been discovered via yeast genome analysis. In addition, a number of genes essential for synthesis of the variety of fatty acids in yeast have been cloned. Advances in understanding such processes in S. cerevisiae will provide helpful insights to functional genomics approaches in more complex organisms.