Biosynthesis of phosphatidic acid through the dihydroxyacetone phosphate pathway requires NADPH-dependent reduction of the intermediate 1-acyldihydroxyacetone phosphate before the second step of acylation. Studies with isolated subcellular fractions of the yeast Saccharomyces cerevisiae revealed that lipid particles and the endoplasmic reticulum harbor 1-acyldihydroxyacetone-phosphate reductase (ADR) activity. Deletion of the open reading frame YIL124w (in the following named AYR1) abolished reduction of 1-acyldihydroxyacetone phosphate in lipid particles, whereas ADR activity in microsomes of the deletion strain was decreased approximately 3-fold as compared with the wild-type level. This result indicates that (i) both lipid particles and microsomes harbor Ayr1p, which was confirmed by immunological detection of the protein in these two cellular compartments, and (ii) microsomes contain at least one additional ADR activity. As a consequence of this redundancy, deletion of AYR1 neither results in an obvious growth phenotype nor affects the lipid composition of a haploid deletion strain. When a heterozygous AYR1(+)/ayr1(-) diploid strain was subjected to sporulation; however, spores bearing the ayr1 defect failed to germinate, suggesting that Ayr1p plays an essential role at this stage. Overexpression of Ayr1p at a 5- to 10-fold level of wild type caused growth arrest. Heterologous expression of Ayr1p in Escherichia coli resulted in gain of ADR activity in the prokaryote, confirming that YIL124w is the structural gene of the enzyme and does not encode a regulatory or auxiliary component required for reduction of 1-acyldihydroxyacetone phosphate. Taken together, these results identified Ayr1p of the yeast as the first ADR from any organism at the molecular level.