A new centromere vector for the construction of a Saccharomyces cerevisiae gene library, allowing direct selection for DNA insert, will be described. From that library the gene for the regulatory protein PHO2 involved in PHO5 induction has been cloned by complementation of a pho2 mutation. The complementing activity was shown to be located on a 3.6 kb HindIII fragment. This fragment was used to evict the genomic copy and with appropriate genetic crosses we proved, that the cloned gene is PHO2. The DNA sequence of PHO2 was determined. Analysis of the sequence data uncovered striking homology regions with PHO4, another protein necessary for the induction of PHO5. The relevance of the observed homology will be discussed.