Overexpression of the MDR1 gene, encoding a multi-drug efflux pump of the major facilitator superfamily, is a major cause of resistance to the widely used antifungal agent fluconazole and other toxic substances in the fungal pathogen Candida albicans. We found that all tested clinical and in vitro generated C. albicans strains that had become fluconazole-resistant by constitutive MDR1 upregulation contained mutations in the MRR1 gene, which encodes a transcription factor that controls MDR1 expression. Introduction of the mutated alleles into a drug-susceptible C. albicans strain resulted in activation of the MDR1 promoter and multi-drug resistance, confirming that the amino acid substitutions in Mrr1p were gain-of-function mutations that rendered the transcription factor constitutively active. The majority of the MDR1 overexpressing strains had become homozygous for the mutated MRR1 alleles, demonstrating that the increased resistance level conferred by two gain-of-function alleles provides sufficient advantage to select for the loss of heterozygosity in the presence of fluconazole both in vitro and within the human host during therapy. Loss of heterozygosity usually occurred by mitotic recombination between the two chromosome 3 homologues on which MRR1 is located, but evidence for complete loss of one chromosome and duplication of the chromosome containing the mutated MRR1 allele was also obtained in two in vitro generated fluconazole-resistant strains. These results demonstrate that gain-of-function mutations in MRR1 are the major, if not the sole, mechanism of MDR1 overexpression in fluconazole-resistant strains and that this transcription factor plays a central role in the development of drug resistance in C. albicans.