Regulation of sterol biosynthesis in the terminal portion of the pathway represents an efficient mechanism by which the cell can control the production of sterol without disturbing the production of other essential mevalonate pathway products. We demonstrate that mutations affecting early and late steps in sterol homeostasis modulate the expression of the ERG3 gene: a late step in sterol biosynthesis in yeast. Expression of ERG3 is increased in response to a mutation in the major isoform of HMG CoA reductase which catalyzes the rate-limiting step of sterol biosynthesis. Likewise, mutations in non-auxotrophic ergosterol biosynthetic genes downstream of squalene production (erg2, erg3, erg4, erg5, and erg6) result in an up-regulation of ERG3 expression. Deletion analysis of the ERG3 promoter identified two upstream activation sequences: UAS1 which when deleted reduces ERG3 gene expression 3-4-fold but maintains sterol regulation and UAS2, which when deleted further reduces ERG3 expression and abolishes sterol regulation. The recent isolation of two yeast genes responsible for the esterification of intracellular sterol (ARE1 and ARE2) has enabled us to directly analyze the relationship between sterol esterification and de novo biosynthesis. Our results demonstrate that the absence of sterol esterification leads to a decrease in total intracellular sterol and ERG3 is a target of this negative regulation.