In the budding yeast Saccharomyces cerevisiae, vacuoles are inherited by the projection of vesicles and tubules from the mother-cell vacuole into the growing daughter cell during the S phase. These vesicles then fuse and form the daughter-cell organelle. We have described previously in vitro reactions of the formation of vacuole-derived segregation structures and of vacuole-vacuole fusion. Homotypic vacuole fusion requires cytosol, ATP and a physiological temperature, and is sensitive to GTPase inhibitors. These reactions are divisible into early stages which require ATP and cytosol, and late stages which require neither. Here, we report that Ypt7p, a ras-like GTPase implicated previously in endocytosis in yeast, is largely localized to the vacuole and is required on both partners during the in vitro vacuole fusion reaction. The in vitro fusion reaction is inhibited either by Gdi1p, which extracts the GDP-bound form of ras-like GTPases from membranes, or by antibodies specific for Ypt7p. The presence of anti-Ypt7p during the early stages of the reaction inhibits the development of cytosol- and ATP-independent intermediates. Although cytosol and ATP are no longer needed for the late stage of vacuole inheritance in vitro, the inhibition of this late stage by anti-Ypt7p or Gdi1p requires the continued presence of ATP and cytosol. Ypt7p is the first GTPase for which a direct role in organelle inheritance has been established.