We purified an intracellular esterase that can function as an S-formylglutathione hydrolase from the yeast Saccharomyces cerevisiae. Its molecular mass was 40 kDa, as determined by gel filtration and sodium dodecyl sulfate-polyacrylamide gel electrophoresis. The isoelectric point was 5.0 by isoelectric focusing. The enzyme activity was optimal at 50 degrees C and pH 7.0. The corresponding gene, YJLO68C, was identified by its N-terminal amino acid sequence and is not essential for cell viability. Null mutants have reduced esterase activities and grow slowly in the presence of formaldehyde. This enzyme may be involved in the detoxification of formaldehyde, which can be metabolized to S-formylglutathione by S. cerevisiae.