Previous analysis of the amino acid sequence of Skn7p, the product of the yeast SKN7 gene, revealed a potential 'receiver motif' homologous to that found in bacterial response regulators (signal-transducing effector proteins regulated by phosphorylation at a conserved aspartate residue corresponding to position D427 in Skn7p). We determined the effects of D427N and D427E mutations in Skn7p. The D427N substitution resulted in diminished activity in four independent in vivo assays of Skn7p function, while the D427E mutation enhanced Skn7p activity in these assays. Our results are consistent with predictions based on the bacterial two-component paradigm and provide experimental evidence that a receiver motif functions in regulating the activity of Skn7p in a eukaryote. Skn7p suppressed growth defects associated with a pkc1 delta mutation, raising the possibility that PKC1 might play a role in regulating Skn7p. However, epistasis experiments indicate that Skn7p does not appear to function directly downstream of the PKC1-MAP kinase pathway. Rather, Skn7p may function in a two-component signal transduction pathway that acts in parallel with the PKC1 cascade to regulate growth at the cell surface. We present evidence suggesting that Skn7p serves as a transcription factor in such a signaling pathway.