A 52-kDa protein, CEL3, has been separated from the culture filtrate of Agaricus bisporus during growth on cellulose. A PCR-derived probe was made, with a degenerate oligodeoxynucleotide derived from the amino acid sequence of a CEL3 CNBr cleavage product and was used to select cel3 cDNA clones from an A. bisporus cDNA library. Two allelic cDNAs were isolated. They showed 98.8% identity of their nucleotide sequences. The deduced amino acid sequence and domain architecture of CEL3 showed a high degree of similarity to those of cellobiohydrolase II of Trichoderma reesei. Functional expression of cel3 cDNA in Saccharomyces cerevisiae was achieved by placing it under the control of a constitutive promoter and fusing it to the yeast invertase signal sequence. Recombinant CEL3 secreted by yeast showed enzymatic activity towards crystalline cellulose. At long reaction times, CEL3 was also able to degrade carboxymethyl cellulose. Northern (RNA) analysis showed that cel3 gene expression was induced by cellulose and repressed by glucose, fructose, 2-deoxyglucose, and lactose. Glycerol, mannitol, sorbitol, and maltose were neutral carbon sources. Nuclear run-on analysis showed that the rate of synthesis of cel3 mRNA in cellulose-grown cultures was 13 times higher than that in glucose-grown cultures. A low basal rate of cel3 mRNA synthesis was observed in the nuclei isolated from glucose-grown mycelia.