Many of the vacuolar protein sorting (vps) mutants of Saccharomyces cerevisiae exhibit severe defects in the sorting of vacuolar proteins but still retain near-normal vacuole morphology. The gene affected in one such mutant, vps21, has been cloned and found to encode a member of the ras-like GTP binding protein family. Sequence comparisons with other known GTP binding proteins indicate that Vps21p is unique but shares striking similarity with mammalian rab5 proteins (> 50% identity and > 70% similarity). Regions with highest similarity are clustered within the putative GTP binding motifs and the proposed effector domains of the Vps21/rab5 proteins. Point mutations constructed within these conserved regions inactivate Vps21p function; the mutant cells missort and secrete the soluble vacuolar hydrolase carboxypeptidase Y (CPY). Cells carrying a complete deletion of the VPS21 coding sequence (i) are viable but exhibit a growth defect at 38 degrees C, (ii) missort multiple vacuolar proteins, (iii) accumulate 40-50 nm vesicles and (iv) contain a large vacuole. VPS21 encodes a 22 kDa protein that binds GTP and fractionates with subcellular membranes. Mutant analysis indicates that the association with a membrane(s) is dependent on geranylgeranylation of the C-terminal cysteine residue(s) of Vps21p. We propose that Vps21p functions in the targeting and/or fusion of transport vesicles that mediate the delivery of proteins to the vacuole.