The integral membrane protein Cvt17/Aut5p is a putative lipase essential for intravacuolar lysis of autophagic bodies. It is localized at the endoplasmic reticulum, from which it is targeted via the multivesicular body (MVB) pathway to intravacuolar MVB vesicles. Proteinase protection experiments now demonstrate that the Aut5 amino terminus is located in the cytosol, and the carboxyl terminus is located inside the ER lumen. In contrast to procarboxypeptidase S, targeting of Cvt17/Aut5p to MVB vesicles is not blocked in cells lacking the ubiquitin ligase Tul1p or the deubiquitinating enzyme Doa4p. Also, truncation of the amino-terminal cytosolic Cvt17/Aut5p domain does not inhibit its targeting to MVB vesicles. These findings suggest that similar to Sna3p sorting of Cvt17/Aut5p to MVB vesicles is independent of ubiquitination. By fusing the ER retention/retrieval signal HDEL to the carboxyl terminus of Cvt17/Aut5p, we generated a construct that is held back at the ER. Detailed analysis of this construct suggests an essential role of vacuolar targeting of Cvt17/Aut5p for its function. Consistently, aut5Delta cells are found impaired in vacuolar degradation of autophagocytosed peroxisomes. Importantly, biochemical and morphological data further suggest involvement of Cvt17/Aut5p in disintegration of intravacuolar MVB vesicles. This points to a general function of Cvt17/Aut5p in intravacuolar membrane breakdown.