The PCD1 nudix hydrolase gene of Saccharomyces cerevisiae has been cloned and the Pcd1p protein characterized as a diphosphatase (pyrophosphatase) with specificity for coenzyme A and CoA derivatives. Oxidized CoA disulfide is preferred over CoA as a substrate with K(m) and k(cat) values of 24 micrometer and 5.0 s(-1), respectively, compared with values for CoA of 280 micrometer and 4.6 s(-1) respectively. The products of CoA hydrolysis were 3'-phosphoadenosine 5'-monophosphate and 4'-phosphopantetheine. F(-) ions inhibited the activity with an IC(50) of 22 micrometer. The sequence of Pcd1p contains a potential PTS2 peroxisomal targeting signal. When fused to the N terminus of yeast-enhanced green fluorescent protein, Pcd1p was shown to locate to peroxisomes by confocal microscopy. It was also shown to co-localize with peroxisomal thiolase by immunofluorescence microscopy. N-terminal sequence analysis of the expressed protein revealed the loss of 7 or 8 amino acids, suggesting processing of the proposed PTS2 signal after import. The function of Pcd1p may be to remove potentially toxic oxidized CoA disulfide from peroxisomes in order to maintain the capacity for beta-oxidation of fatty acids.