An open reading frame from yeast coding for a homologue of flavin containing monooxygenase (FMO) has been cloned into several Escherichia coli expression vectors. A His10 peptide attached to the amino terminus produced a high yield of soluble protein when coexpressed with GroEL and GroES. The protein was purified on an affinity column and characterized. The protein binds one mole per mole of flavin but the binding is relatively weak and 50 microM exogenous FAD is used to maintain full occupancy. The yeast enzyme, like mammalian enzymes, exhibits NADPH oxidase activity. The enzyme does not catalyze the oxidation of amines, but thiols, including glutathione, cysteine, and cysteamine, show substrate activity. The Km values for these are 7.0, 9.9, and 1.3 mM, respectively; kcat values are 94, 246, and 94 per min, respectively. The enzyme apparently does not accept xenobiotic compounds but may be involved in maintaining cellular reducing potential, probably through its action on cysteamine. This activity may represent the initial role of the FMO family of enzymes, giving rise to the multigene family of drug metabolizing enzymes seen in modern mammals.