Fatty acid ethyl esters are secondary metabolites produced by Saccharomyces cerevisiae and many other fungi. Their natural physiological role is not known but in fermentations of alcoholic beverages and other food products they play a key role as flavor compounds. Information about the metabolic pathways and enzymology of fatty acid ethyl ester biosynthesis, however, is very limited. In this work, we have investigated the role of a three-member S. cerevisiae gene family with moderately divergent sequences (YBR177c/EHT1, YPL095c/EEB1, and YMR210w). We demonstrate that two family members encode an acyl-coenzymeA:ethanol O-acyltransferase, an enzyme required for the synthesis of medium-chain fatty acid ethyl esters. Deletion of either one or both of these genes resulted in severely reduced medium-chain fatty acid ethyl ester production. Purified glutathione S-transferase-tagged Eht1 and Eeb1 proteins both exhibited acyl-coenzymeA:ethanol O-acyltransferase activity in vitro, as well as esterase activity. Overexpression of Eht1 and Eeb1 did not enhance medium-chain fatty acid ethyl ester content, which is probably due to the bifunctional synthesis and hydrolysis activity. Molecular modeling of Eht1 and Eeb1 revealed the presence of a alpha/beta-hydrolase fold, which is generally present in the substrate-binding site of esterase enzymes. Hence, our results identify Eht1 and Eeb1 as novel acyl-coenzymeA:ethanol O-acyltransferases/esterases, whereas the third family member, Ymr210w, does not seem to play an important role in medium-chain fatty acid ethyl ester formation.