Saccharomyces cerevisiae responds to iron deprivation by increasing the transcription of genes involved in the uptake of environmental iron and in the mobilization of vacuolar iron stores. HMX1 is also transcribed under conditions of iron deprivation and is under the control of the major iron-dependent transcription factor, Aft1p. Although Hmx1p exhibits limited homology to heme oxygenases, it has not been shown to be enzymatically active. We find that Hmx1p is a resident protein of the endoplasmic reticulum and that isolated yeast membranes contain a heme degradation activity that is dependent on HMX1. Hmx1p facilitates the capacity of cells to use heme as a nutritional iron source. Deletion of HMX1 leads to defects in iron accumulation and to expansion of intracellular heme pools. These alterations in the regulatory pools of iron lead to activation of Aft1p and inappropriate activation of heme-dependent transcription factors. Expression of HmuO, the heme oxygenase from Corynebacterium diphtheriae, restores iron and heme levels, as well as Aft1p- and heme-dependent transcriptional activities, to those of wild type cells, indicating that the heme degradation activity associated with Hmx1p is important in mediating iron and heme homeostasis. Hmx1p promotes both the reutilization of heme iron and the regulation of heme-dependent transcription during periods of iron scarcity.