Bleomycin (BLM) is a DNA binding and damaging antibiotic produced by Streptomyces verticillus that has been used as an anti-tumor drug for various human cancers. The mammalian BLM hydrolase is a cysteine protease that inactivates BLM to relieve the toxicity of BLM to normal and tumor cells. The normal physiological function of BLM hydrolase is not known, but its activity limits the use of BLM in cancer chemotherapy. We have discovered a DNA binding activity for the yeast homolog of the mammalian BLM hydrolase in the course of studying the interaction of GAL4, a DNA-binding transcription factor, with its DNA recognition sites. Using gel mobility shift assays, we have purified a protein from yeast that binds specifically to the GAL4 DNA-binding sites. The purified protein is a tetramer of a 48-kDa polypeptide. The gene encoding the 48-kDa polypeptide was cloned and has a high homology to rabbit BLM hydrolase. The purified protein was confirmed to have a cysteine protease activity that can hydrolyze and inactivate BLM in vitro. We have established the optimal conditions for the protease activity of this protein and biochemically characterized its DNA binding activity. This protein binds both single- and double-stranded forms of the GAL4 DNA-binding sites with high affinity (10 nM to single strand and 1 microM to double strand). Its DNA binding activity is heat stable and resistant to various detergents. This protein may represent the first example of a eukaryotic DNA-binding protease. The discovery of a DNA binding activity for BLM hydrolase suggests an in vivo interaction between it and BLM on DNA.