Acetyl-CoA hydrolase (Ach1p), catalyzing the hydrolysis of acetyl-CoA, is presumably involved in regulating intracellular acetyl-CoA or CoASH pools; however, its intracellular functions and distribution remain to be established. Using site-directed mutagenesis analysis, we demonstrated that the enzymatic activity of Ach1p is dependent upon its putative acetyl-CoA binding sites. The ach1 mutant causes a growth defect in acetate but not in other non-fermentable carbon sources, suggesting that Ach1p is not involved in mitochondrial biogenesis. Overexpression of Ach1p, but not constructs containing acetyl-CoA binding site mutations, in ach1-1 complemented the defect of acetate utilization. By subcellular fractionation, most of the Ach1p in yeast was distributed with mitochondria and little Ach1p in the cytoplasm. By immunofluorescence microscopy, we show that Ach1p and acetyl-CoA binding site-mutated constructs, but not its N-terminal deleted construct, are localized in mitochondria. Moreover, the onset of pseudohyphal development in homozygote ach1-1 diploids was abolished. We infer that Ach1p may be involved in a novel acetyl-CoA biogenesis and/or acetate utilization in mitochondria and thereby indirectly affect pseudohyphal development in yeast.