Sphingomyelinases (SMases) generate ceramides, which are known to regulate cell cycle and growth. Only one enzyme that belongs to the extended family of SMases is present in S. cerevisiae, Isc1p; however, little is known about its regulation or physiologic function. Deletion of ISC1 in S. cerevisiae resulted in a growth defect, and the slow growth phenotype was rescued by plasmid-borne expression of Isc1, confirming its role in growth. The levels of phytoceramide exhibited an Isc1p-dependent increase of approximately 4-fold after 24 h of growth. In addition, the specific activity of Isc1p was significantly elevated (>3-fold) between the early logarithmic and the late logarithmic/start of stationary phases of growth. The activation of the enzyme was not associated with increased levels of the protein, indicating that the mechanism is independent of transcription/translation. Interestingly, this activation was lost upon delipidation of the enzyme, raising the possibility of regulation by associated lipids. Confocal microscopy revealed that the enzyme was predominantly in the ER during early growth but became associated with mitochondria in late logarithmic growth. These results were also supported by differential centrifugation and isolation of mitochondria and further confirmed in mitochondria purified using sucrose gradients at the different stages of growth. These results reveal that the activity and localization of Isc1p are regulated in a growth-dependent manner. A novel mechanism for activation of Isc1p through localization to mitochondria is proposed. The results also suggest a role for Isc1p-generated ceramides in optimal regulation of growth.