The Saccharomyces cerevisiae OLE1 gene encodes a membrane-bound Delta9 fatty-acid desaturase, whose expression is regulated through transcriptional and mRNA stability controls. In wild type cells grown on fatty acid-free medium, OLE1 mRNA has a half-life of 10 +/- 1.5 min (basal stability) that becomes highly unstable when cells are exposed to unsaturated fatty acids (regulated stability). Activation of OLE1 transcription is dependent on N-terminal fragments of two membrane proteins, Mga2p and Spt23p, that are proteolytically released from the membrane by a ubiquitin-mediated mechanism. Surprisingly, disruption of the MGA2 gene also reduces the half-life of the OLE1 transcript and abolishes fatty acid regulated instability. Disruption of its cognate, SPT23, has no effect on the half-life of the mRNA. Mga2p appears to have two distinct functions with respect to the OLE1 mRNA stability: a stabilizing effect in cells grown in fatty acid-free medium and a destabilizing function in cells that are exposed to unsaturated fatty acids. These functions are independent of OLE1 transcription and can confer basal and regulated stability on OLE1 mRNAs that are produced under the control of the unrelated GAL1 promoter. Expression of soluble, N-terminal fragments of Mga2p stabilize the transcript but do not confer fatty acid-regulated instability on the mRNA suggesting that the stabilizing functions of Mga2p do not require membrane processing and that modifications to the protein introduced during proteolysis may play a role in the destabilizing effect. An analysis of mutants that are defective in mRNA degradation indicate that the Mga2p-requiring control mechanism that regulates the fatty acid-mediated instability of the OLE1 transcript acts by activating exosomal 3' --> 5'-exonuclease degradation activity.