In Saccharomyces cerevisiae the metabolic degradation of saturated fatty acids is exclusively confined to peroxisomes. In addition to a functional beta-oxidation system, the degradation of unsaturated fatty acids requires auxiliary enzymes, including a Delta2, Delta3-enoyl-CoA isomerase and an NADPH-dependent 2,4-dienoyl-CoA reductase. We found both enzymes to be present in yeast peroxisomes. The impermeability of the peroxisomal membrane for pyrimidine nucleotides led to the question of how the NADPH needed by the reductase is regenerated in the peroxisomal lumen. We report the identification and functional analysis of the IDP3 gene product, which is a yeast peroxisomal NADP-dependent isocitrate dehydrogenase. The newly identified peroxisomal protein is homologous to the mitochondrial Idp1p and cytosolic Idp2p, which both are yeast NADP-dependent isocitrate dehydrogenases. Yeast cells lacking Idp3p grow normally on saturated fatty acids, but growth is impaired on unsaturated fatty acids, indicating that the peroxisomal Idp3p is involved in their metabolic utilization. The data presented are consistent with the assumption that peroxisomes of S. cerevisiae contain the enzyme equipment needed for the degradation of unsaturated fatty acids, including an NADP-dependent isocitrate dehydrogenase, a putative constituent of a peroxisomal NADPH-regenerating redox system.