In Saccharomyces cerevisiae, peroxisomes are the exclusive site for the degradation of fatty acids. Upon growth with the fatty acid oleic acid as sole carbon source, not only are the enzymes of beta-oxidation and catalase A induced, but also the peroxisomal compartment as a whole increases in volume and the number of organelles per cell rises. We previously identified a cis-acting DNA sequence [oleate response element (ORE)] involved in induction of genes encoding peroxisomal proteins. The aim of our investigation was to test whether a single mechanism acting via the ORE coordinates the events necessary for the proliferation of an entire organelle. Here we report the cloning and characterization of the oleate-specific transcriptional activator protein Pip2p (pip: peroxisome induction pathway). Pip2p contains a typical Zn(2)-Cys(6) cluster domain and binds to OREs. A pip2 deletion strain is impaired in growth on oleate as sole carbon source and the induction of beta-oxidation enzymes is abolished. Moreover, only a few, small peroxisomes per cell can be detected. These results indicate that fatty acids activate Pip2p, which in turn activates the transcription of genes encoding beta-oxidation components and acts as the crucial activator of peroxisomes.