In this, study we cloned CTA1, the gene encoding peroxisomal catalase, from the methylotrophic yeast Candida, boidinii and studied targeting of the gene product, Cta1p, into peroxisomes by using green fluorescent protein (GFP) fusion proteins. A strain from which CTA1 was deleted (cta1 Delta strain) showed marked growth inhibition when it was grown on the peroxisome-inducing carbon sources methanol, oleate, and D-alanine, indicating, that peroxisomal catalase plays an important nonspecific role in peroxisomal metabolism. Cta1p carries a peroxisomal targeting signal type 1 (PTS1) motif, -NKF, in its carboxyl terminus. Using GFP fusion proteins, Nye found that (i) Cta1p is transported to peroxisomes via its PTS1 motif, -NKF; (ii) peroxisomal localization is, necessary for Cta1p to function physiologically; and (iii) Cta1p is bimodally distributed between the cytosol and peroxisomes in methanol-grown cells but is localized exclusively in peroxisomes in oleate- and. D-alanine-grown cells. In contrast, the fusion protein GFP-AKL (GFP fused to another typical PTS1 sequence, -AKL), in the context of CbPmp20 and D-amino acid oxidase, was found to localize exclusively in peroxisomes. A yeast two-hybrid system analysis suggested that the low transport efficiency of the -NKF sequence is due to a level of interaction between the -NKF sequence and the PTS1 receptor that is lower than the level of interaction with the AKL sequence. Furthermore, GFP-Cta1p Delta nkf coexpressed with Cta1p was successfully localized in peroxisomes, suggesting that the oligomer was formed prior to peroxisome import and that it is not necessary. for all four subunits to possess a PTS motif. Since the main physiological function of catalase is degradation of H2O2, suboptimal efficiency of catalase import may confer an evolutionary advantage. We suggest that the PTS1 sequence, which is, found in peroxisomal catalases, has evolved in such a way as to give a higher priority for peroxisomal transport to peroxisomal enzymes other than to catalases (e.g., oxidases), which require a higher level of peroxisomal transport efficiency.