The dimorphic yeast Yarrowia lipolytica is used as a model to study fungal differentiation because it grows as yeast-like cells or forms hyphal cells in response to changes in environmental conditions. Here, we report the isolation and characterization of a gene, ZNC1, involved in the dimorphic transition in Y. lipolytica. The ZNC1 gene encodes a 782 amino acid protein that contains a Zn(II)2C6 fungal-type zinc finger DNA-binding domain and a leucine zipper domain. ZNC1 transcription is elevated during yeast growth and decreases during the formation of mycelium. Cells in which ZNC1 has been deleted show increased hyphal cell formation. Znc1p-GFP localizes to the nucleus, but mutations within the leucine zipper domain of Znc1p, and to a lesser extent within the Zn(II)2C6 domain, result in a mislocalization of Znc1p to the cytoplasm. Microarrays comparing gene expression between znc1::URA3 and wild-type cells during both exponential growth and the induction of the yeast-to-hypha transition revealed 1,214 genes whose expression was changed by 2-fold or more under at least one of the conditions analyzed. Our results suggest that Znc1p acts as a transcription factor repressing hyphal cell formation and functions as part of a complex network regulating mycelial growth in Y. lipolytica.