Four yeast mutants were isolated in a screen for dominant-negative vacuolar protein-sorting mutants, secreting a carboxypeptidase Y-invertase hybrid protein. In addition to defects in the sorting/transport of soluble vacuolar hydrolases, the mutants accumulated a pre-vacuolar endosome-like compartment. The mutant alleles causing the defects were identified as the members of the VPS4 gene locus, each harbouring single-point mutations leading to amino-acid exchanges at positions 233 (E233Q), 211 (E211 K), and 178 (G178D). These mutations all reside within a 200 amino-acid-long ATPase module, common to members of the AAA-protein family. The VPS4 gene product shows homology to the yeast Sec18p (50% similarity and 25% identity), which is involved in several vesicle-mediated protein transport steps and homotypic membrane fusion events. Disruption of the VPS4 gene leads to a recessive vacuolar protein-sorting phenotype. About 40% of newly synthesized CPY is secreted as the Golgi-modified p2CPY precursor form. Transport of secretory proteins to the plasma membrane is normal as demonstrated by the secretion of invertase and alpha-factor. The alpha-factor, however, is secreted as a partially processed precursor, caused by defects in late Golgi function. The vps4 mutants also exhibit defects in fluid-phase endocytosis, as demonstrated by the accumulation of Lucifer Yellow in a pre-vacuolar endosome-like compartment. Based on the pleiotropic phenotype of the vps4 mutants and on the sequence homology to NSF/Sec18p, we propose that the VPS4 gene product is required for efficient transport out of the pre-vacuolar endosome-like compartment.