We previously cloned a yeast DNA fragment that, when fused with the bacterial lacZ promoter, produced O6-methylguanine DNA repair methyltransferase (MGT1) activity and alkylation resistance in Escherichia coli (Xiao et al., EMBO J. 10,2179). Here we describe the isolation of the entire MGT1 gene and its promoter by sequence directed chromosome integration and walking. The MGT1 promoter was fused to a lacZ reporter gene to study how MGT1 expression is controlled. MGT1 is not induced by alkylating agents, nor is it induced by other DNA damaging agents such as UV light. However, deletion analysis defined an upstream repression sequence, whose removal dramatically increased basal level gene expression. The polypeptide deduced from the complete MGT1 sequence contained 18 more N-terminal amino acids than that previously determined; the role of these 18 amino acids, which harbored a potential nuclear localization signal, was explored. The MGT1 gene was also cloned under the GAL1 promoter, so that MTase levels could be manipulated, and we examined MGT1 function in a MTase deficient yeast strain (mgt1). The extent of resistance to both alkylation-induced mutation and cell killing directly correlated with MTase levels. Finally we show that mgt1 S.cerevisiae has a higher rate of spontaneous mutation than wild type cells, indicating that there is an endogenous source of DNA alkylation damage in these eukaryotic cells and that one of the in vivo roles of MGT1 is to limit spontaneous mutations.