Abstract. We have evaluated the fate of misfolded protein domains in the Saccharomyces cerevisiae secretory pathway by fusing mutant forms of the NH2-terminal domain of h repressor protein to the secreted protein invertase. The hybrid protein carrying the wild-type repressor domain is mostly secreted to the cell surface, whereas hybrid proteins with amino acid substitutions that cause the repressor domain to be thermodynamically unstable are retained intracellularly. Surprisingly, the retained hybrids are found in the vacuole, where the repressor moiety is degraded by vacuolar proteases. The following observations indicate that receptor-mediated recognition of the mutant repressor domain in the Golgi lumen targets these hybrid fusions to the vacuole. UKARYOTIC cells have the ability to discriminate between correctly folded and misfolded proteins within the secretory pathway. Experimentally, secretory proteins can be prevented from achieving their native folded conformations by mutation (Doms et al., 1988;Cheng et al., 1990), expression of single subunits of multisubunit complexes (Lippincott-Schwartz et al., 1988;Wikstrom and Lodish, 1992), or by inhibition of glycosylation or disulfide bond formation (Olden et al., 1979;Braakman et al., 1992). In all of these cases, failure either to fold or to oligomerize properly causes the protein to be retained intracellularly, most often in the ER, and then to be degraded. The capacity of the cell to retain and to degrade unfolded or unassembled secretory proteins constitutes a quality control process that prevents secretion of defective gene products to the cell surface and allows for the salvage of amino acids from nonfunctional proteins (de Silva et al., 1990;McCracken and Brodsky, 1996).To gain access to the mechanisms that underlie quality control of secretory proteins, we have developed a method to examine systematically the fate of unfolded polypeptides in the Saccharomyces cerevisiae secretory pathway. men of the ER as a fusion protein and to compare the fate of a folded, wild-type domain to that of mutant domains that are thermodynamically unstable. We chose as a test protein the 92-amino acid NH2-terminal DNA-binding domain of the phage k repressor. Crystallographic and biochemical analyses have shown that the NH2-terminal domain of h repressor is a compact globular structure without solvent-exposed hydrophobic regions or flexible strands that might be recognized as unfolded substrate (Pabo and Lewis, 1982). Moreover, folding of the repressor domain in the ER lumen should not be impeded by inappropriate disulfide bond formation or carbohydrate addition since the amino acid sequence does not contain cysteine residues or potential sites for N-linked glycosylation. The effect of unfolding of the NH2-terminal domain of k repressor can be tested using mutants that reduce the thermal stability of the protein. For most of our work, we use a Leu 57 to Ala mutation that reduces the hydrophobicity of the core of the folded protein, thereby lowering the temperature of 50% t...