In eukaryotes, each subcellular compartment harbors a specific group of proteins that must accomplish specific tasks. Nfs1 is a highly conserved mitochondrial cysteine desulfurase that participates in iron-sulfur cluster assembly as a sulfur donor. Previous genetic studies, in Saccharomyces cerevisiae, have suggested that this protein distributes between the mitochondria and the nucleus with biochemically undetectable amounts in the nucleus (termed "eclipsed distribution"). Here, we provide direct evidence for Nfs1 nuclear localization (in addition to mitochondria) using both alpha-complementation and subcellular fractionation. We also demonstrate that mitochondrial and nuclear Nfs1 are derived from a single translation product. Our data suggest that the Nfs1 distribution mechanism involves at least partial entry of the Nfs1 precursor into mitochondria, and then retrieval of a minor subpopulation (probably by reverse translocation) into the cytosol and then the nucleus. To further elucidate the mechanism of Nfs1 distribution we determined the N-terminal mitochondrial sequence of Nfs1 by Edman degradation. This led to the discovery of a novel mitochondrial processing enzyme, Icp55. This enzyme removes three amino acids from the N terminus of Nfs1 after cleavage by mitochondrial processing peptidase. Intriguingly, Icp55 protease (like its substrate Nfs1) appears to be dual distributed between the nucleus and mitochondria.