The dynamin-related GTPase, Mgm1p, is critical for the fusion of the mitochondrial outer membrane, maintenance of mitochondrial DNA (mtDNA), formation of normal inner membrane structures, and inheritance of mitochondria. Although there are two forms of Mgm1p, 100 and 90 kDa, their respective functions and the mechanism by which these two forms are produced are not clear. We previously isolated ugo2 mutants in a genetic screen to identify components involved in mitochondrial fusion [J. Cell Biol. 152 (2001) 1123]. In this paper, we show that ugo2 mutants are defective in PCP1, a gene encoding a rhomboid-related serine protease. Cells lacking Pcp1p are defective in the processing of Mgm1p and produce only the larger (100 kDa) form of Mgm1p. Similar to mgm1delta cells, pcp1delta cells contain partially fragmented mitochondria, instead of the long tubular branched mitochondria of wild-type cells. In addition, pcp1delta cells, like mgm1delta cells, lack mtDNA and therefore are unable to grow on nonfermentable medium. Mutations in the catalytic domain lead to complete loss of Pcp1p function. Similar to mgm1delta cells, the fragmentation of mitochondria and loss of mtDNA of pcp1delta cells were rescued when mitochondrial division was blocked by inactivating Dnm1p, a dynamin-related GTPase. Surprisingly, in contrast to mgm1delta cells, which are completely defective in mitochondrial fusion, pcp1delta cells can fuse their mitochondria after yeast cell mating. Our study demonstrates that Pcp1p is required for the processing of Mgm1p and controls normal mitochondrial shape and mtDNA maintenance by producing the 90 kDa form of Mgm1p. However, the processing of Mgm1p is not strictly required for mitochondrial fusion, indicating that the 100 kDa form is sufficient to promote fusion.