The genome of the yeast Saccharomyces cerevisiae encodes the essential protein Nar1p that is conserved in virtually all eukaryotes and exhibits striking sequence similarity to bacterial iron-only hydrogenases. A human homologue of Nar1p was shown previously to bind prenylated prelamin A in the nucleus. However, yeast neither exhibits hydrogenase activity nor contains nuclear lamins. Here, we demonstrate that Nar1p is predominantly located in the cytosol and contains two adjacent iron-sulphur (Fe/S) clusters. Assembly of its Fe/S clusters crucially depends on components of the mitochondrial Fe/S cluster biosynthesis apparatus such as the cysteine desulphurase Nfs1p, the ferredoxin Yah1p and the ABC transporter Atm1p. Using functional studies in vivo, we show that Nar1p is required for maturation of cytosolic and nuclear, but not of mitochondrial, Fe/S proteins. Nar1p-depleted cells do not accumulate iron in mitochondria, distinguishing these cells from mutants in components of the mitochondrial Fe/S cluster biosynthesis apparatus. In conclusion, Nar1p represents a crucial, novel component of the emerging cytosolic Fe/S protein assembly machinery that catalyses an essential and ancient process in eukaryotes.