Five allelic Saccharomyces cerevisiae mutants deficient in the methylation of phosphatidylethanolamine (PE) have been isolated, using two different screening techniques. Biochemical analysis suggested that these mutants define a locus, designated CHO2, that may encode a methyltransferase. Membranes of cho2 mutant cells grown in defined medium contain approximately 10% phosphatidylcholine (PC) and 40-50% PE as compared to wild-type levels of 40-45% PC and 15-20% PE. In spite of this greatly altered phospholipid composition, cho2 mutant cells are viable in defined medium and are not auxotrophic for choline or other phospholipid precursors such as monomethylethanolamine (MME). However, analysis of yeast strains carrying more than one mutation affecting phospholipid biosynthesis indicated that some level of methylated phospholipid is essential for viability. The cho2 locus was shown by tetrad analysis to be unlinked to other loci affecting phospholipid synthesis. Interestingly, cho2 mutants and other mutant strains that produce reduced levels of methylated phospholipids are unable to properly repress synthesis of the cytoplasmic enzyme inositol-1-phosphate synthase. This enzyme was previously shown to be regulated at the level of mRNA abundance in response to inositol and choline in the growth medium. We cloned the CHO2 gene on a 3.6-kb genomic DNA fragment and created a null allele of cho2 by disrupting the CHO2 gene in vivo. The cho2 disruptant, like all other cho2 mutants, is viable, exhibits altered regulation of inositol biosynthesis and is not auxotrophic for choline or MME.