In the yeast Saccharomyces cerevisiae, PAS genes are essential for the biogenesis and proliferation of peroxisomes. Recently, the first two genes, PAS1 (ref. 3) and PAS3 (ref. 4), have been characterized. Here we report the cloning and sequencing of the PAS2 gene. It encodes a new member of the ubiquitin-conjugating (UBC) protein family and is the first member associated with peroxisomes. The proposed function of the Pas2 protein as a UBC enzyme (UBC10) is supported by the fact that site-directed mutagenesis of a strictly conserved and functionally essential cysteine residue of UBC proteins leads to mutant Pas2 proteins unable to complement pas2 mutant strains. Ubiquitination of proteins is known to play an important part in DNA repair, sporulation, cell cycle control and degradation of abnormal proteins. We provide evidence for a crucial role of the ubiquitin-conjugation pathway in organelle formation.