Redox-sensitive yellow fluorescent protein (rxYFP) contains a dithiol disulfide pair that is thermodynamically suitable for monitoring intracellular glutathione redox potential. Glutaredoxin 1 (Grx1p) from yeast is known to catalyze the redox equilibrium between rxYFP and glutathione, and here, we have generated a fusion of the two proteins, rxYFP-Grx1p. In comparison to isolated subunits, intramolecular transfer of reducing equivalents made the fusion protein kinetically superior in reactions with glutathione. The rate of GSSG oxidation was thus improved by a factor of 3300. The reaction with GSSG most likely takes place entirely through a glutathionylated intermediate and not through transfer of an intramolecular disulfide bond. However, during oxidation by H(2)O(2), hydroxyethyl disulfide, or cystine, the glutaredoxin domain reacted first, followed by a rate-limiting (0.13 min(-)(1)) transfer of a disulfide bond to the other domain. Thus, reactivity toward other oxidants remains low, giving almost absolute glutathione specificity. We have further studied CPYC --> CPYS variants in the active site of Grx1p and found that the single Cys variant had elevated oxidoreductase activity separately and in the fusion. This could not be ascribed to the lack of an unproductive side reaction to glutaredoxin disulfide. Instead, slower alkylation kinetics with iodoacetamide indicates a better leaving-group capability of the remaining cysteine residue, which can explain the increased activity.