Deletion of the amino-terminal 17 residues from human ADP-ribosylation factor (ARF) resulted in a protein ([delta 1-17]mARF1p) devoid of ARF activity but which retained the ability to bind guanine nucleotides with high affinity. Unlike the wild type, the binding of guanine nucleotides to this deletion mutant was found to be independent of added phospholipids. A chimeric protein was produced, consisting of 10% (the amino-terminal 17 amino acids) human ARF1p and 90% ARL1p, an ARF-like protein (55% identical protein sequence) from Drosophila. This chimera was found to have ARF activity, lacking in the parental ARL1 protein. Thus, the amino terminus of ARF1p was shown to be a critical component of ARF activity. A synthetic peptide, derived from the amino terminus of ARF1p, has no ARF activity. Rather, the peptide was found to be a specific inhibitor of ARF activities. This peptide was also found to be a potent and specific inhibitor of both an in vitro intra-Golgi transport assay and the guanosine 5'-3-O-(thio)triphosphate-stimulated accumulation of coated vesicles and buds from Golgi preparations. We conclude that ARF is required for the budding of coated vesicles from the Golgi stacks and serves a regulatory role in protein secretion through the Golgi in eukaryotic cells.