We have identified a Saccharomyces cerevisiae gene necessary for the step in sphingolipid synthesis in which inositol phosphate is added to ceramide to form inositol-P-ceramide, a reaction catalyzed by phosphatidylinositol:ceramide phosphoinositol transferase (IPC synthase). This step should be an effective target for antifungal drugs. A key element in our experiments was the development of a procedure for isolating mutants defective in steps in sphingolipid synthesis downstream from the first step including a mutant defective in IPC synthase. An IPC synthase defect is supported by data showing a failure of the mutant strain to incorporate radioactive inositol or N-acetylsphinganine into sphingolipids and, by using an improved assay, a demonstration that the mutant strain lacks enzyme activity. Furthermore, the mutant accumulates ceramide when fed exogenous phytosphingosine as expected for a strain lacking IPC synthase activity. Ceramide accumulation is accompanied by cell death, suggesting the presence of a ceramide-activated death response in yeast. A gene, AUR1 (YKL004w), that complements the IPC synthase defect and restores enzyme activity and sphingolipid synthesis was isolated. Mutations in AUR1 had been shown previously to give resistance to the antifungal drug aureobasidin A, leading us to predict that the drug should inhibit IPC synthase activity. Our data show that the drug is a potent inhibitor of IPC synthase with an IC50 of about 0.2 nM. Fungal pathogens are an increasing threat to human health. Now that IPC synthase has been shown to be the target for aureobasidin A, it should be possible to develop high throughput screens to identify new inhibitors of IPC synthase to combat fungal diseases.