The dynamic vesicle transport processes at the late-Golgi compartment of Saccharomyces cerevisiae (TGN) require dedicated mechanisms for correct localization of resident membrane proteins. In this study, we report the identification of a new gene, GRD19, involved in the localization of the model late-Golgi membrane protein A-ALP (consisting of the cytosolic domain of dipeptidyl aminopeptidase A [DPAP A] fused to the transmembrane and lumenal domains of the alkaline phosphatase [ALP]), which localizes to the yeast TGN. A grd19 null mutation causes rapid mislocalization of the late-Golgi membrane proteins A-ALP and Kex2p to the vacuole. In contrast to previously identified genes involved in late-Golgi membrane protein localization, grd19 mutations cause only minor effects on vacuolar protein sorting. The recycling of the carboxypeptidase Y sorting receptor, Vps10p, between the TGN and the prevacuolar compartment is largely unaffected in grd19Delta cells. Kinetic assays of A-ALP trafficking indicate that GRD19 is involved in the process of retrieval of A-ALP from the prevacuolar compartment. GRD19 encodes a small hydrophilic protein with a predominantly cytosolic distribution. In a yeast mutant that accumulates an exaggerated form of the prevacuolar compartment (vps27), Grd19p was observed to localize to this compartment. Using an in vitro binding assay, Grd19p was found to interact physically with the cytosolic domain of DPAP A. We conclude that Grd19p is a component of the retrieval machinery that functions by direct interaction with the cytosolic tails of certain TGN membrane proteins during the sorting/budding process at the prevacuolar compartment.