Genetics and in vitro studies have shown that the direct interaction between Gal3p and Gal80p plays a central role in galactose-dependent Gal4p-mediated GAL gene expression in the yeast Saccharomyces cerevisiae. Precisely how Gal3p-Gal80p interaction effects induction is not clear. It has been assumed that Gal3p interacts with Gal80p in the nucleus upon galactose addition to release Gal80p inhibition of Gal4p. Although Gal80p has been shown to possess nuclear localization signal (NLS) peptides, the subcellular distribution of neither Gal80p nor Gal3p was previously determined. Here we report that Gal3p is located in the cytoplasm and apparently excluded from the nucleus. We show that Gal80p is located in both the cytoplasm and the nucleus. Converting Gal80p into a nucleus-localized protein (NLS-Gal80p) by exogenous NLS addition impairs GAL gene induction. The impaired induction can be partially suppressed by targeting Gal3p to the nucleus (NLS-Gal3p). We document a very rapid association between NLS-Gal3p and Gal80p in vivo in response to galactose, illustrating that the nuclear import of Gal80p is very rapid and efficient. We also demonstrate that nucleus-localized NLS-Gal80p can move out of the nucleus and shuttle between nuclei in yeast heterokaryons. These results are the first indication that the subcellular distribution dynamics of the Gal3 and Gal80 proteins play a role in regulating Gal4p-mediated GAL gene expression in vivo.