In animal cells, luminal endoplasmic reticulum (ER) proteins are prevented from being secreted by a sorting system that recognizes the C-terminal sequence KDEL. We show that yeast has a similar sorting system, but it recognizes HDEL, rather than KDEL: derivatives of the enzyme invertase that bear the HDEL signal fail to be secreted. An invertase fusion protein that is retained in the cells is partially modified by outer-chain mannosyl transferases, which reside in the Golgi element. This supports the view, based on studies in animal cells, that ER targeting is achieved by continuous retrieval of proteins from the Golgi. We have used an invertase fusion gene to screen for mutants that are defective in this sorting system. Over 60 mutants were obtained; eight of these are alleles of a single gene, erd1. The mutant strains grow normally at 30 degrees C, but instead of retaining the fusion protein in the cells, they secrete it.