The gene encoding Candida tropicalis peroxisomal trifunctional enzyme, hydratase-dehydrogenase-epimerase (HDE), was expressed in both Candida albicans and Saccharomyces cerevisiae. The cellular location of HDE was determined by subcellular fractionation followed by Western blot analysis of peroxisomal and cytosolic fractions using antiserum specific for HDE. HDE was found to be exclusively targeted to and imported into peroxisomes in both heterologous expression systems. Deletion and mutational analyses were used to determine the regions within HDE which are essential for its targeting to peroxisomes. Deletion of a carboxyl-terminal tripeptide Ala-Lys-Ile completely abolished targeting of HDE to peroxisomes, whereas large internal deletions of HDE (amino acids 38-353 or 395-731) had no effect on HDE targeting to peroxisomes in either yeast. This tripeptide is similar to, but distinct from, other tripeptide peroxisomal targeting sequences (PTSs) as identified in peroxisomal firefly luciferase and four mammalian peroxisomal proteins. Substitutions within the carboxyl-terminal tripeptide (Ala----Gly and Lys----Gln) supported targeting of HDE to peroxisomes of C. albicans but not of S. cerevisiae. This is the first detailed analysis of the peroxisomal targeting signal in a yeast peroxisomal protein.