In the yeast Saccharomyces cerevisiae, mutations in either of two unlinked genes, RAM1 or RAM2, abolish the farnesyltransferase activity responsible for prenylation of Ras proteins and the a-factor mating pheromone. Here we report that the function of RAM1 and RAM2 genes is required for the membrane localization of Ras proteins and a-factor. The RAM2 gene was sequenced and can encode a 38-kDa protein. We examined the functional interaction of RAM2 and RAM1 by expressing the genes in Escherichia coli. Extracts derived from an E. coli strain that coexpressed RAM1 and RAM2 efficiently farnesylated a-factor peptide and Ras protein substrates. In contrast, extracts derived from E. coli strains that expressed either RAM gene alone were devoid of activity; however, when the latter extracts were mixed, protein farnesyltransferase activity was reconstituted. These results indicate that the yeast farnesyl-protein transferase is comprised of Ram1 and Ram2 polypeptides. Although Ram1 is a component of the enzyme, disruption of the RAM1 gene in yeast was not lethal, indicating that the Ram1-Ram2 farnesyltransferase is not essential for viability. In contrast, disruption of RAM2 was lethal, suggesting that Ram2 has an essential function in addition to its role with Ram1 in protein farnesylation.