A 25-kDa inhibitor of the vacuolar enzyme carboxypeptidase Y from Saccharomyces cerevisiae has been characterized. The inhibitor, Ic, binds tightly with an apparent Ki of 0.1 nM. Consistent with a cytoplasmic localization, Ic is soluble and contains no sequences which could serve as potential signals for transport into the endoplasmic reticulum. Surprisingly, Ic is encoded by TFS1, which has previously been isolated as a high-copy suppressor of cdc25-1. CDC25 encodes the putative GTP exchange factor for Ras1p/Ras2p in yeast. In an attempt to rationalize this finding, we looked for a physiological relationship by deleting or overexpressing the gene for carboxypeptidase Y in a cdc25-1 strain. However, this did not change the phenotype of this mutant strain. Ic is the first member of a new family of protease inhibitors. The inhibitor is not hydrolyzed on binding to CPY. It has fairly high degree of specificity, showing a 200-fold higher Ki toward a carboxypeptidase from Candida albicans which is highly homologous to carboxypeptidase Y. The TFS1 gene product shows extensive similarity to a class of proteins termed "21-23-kDa lipid binding proteins", members of which are found in several higher eukaryotes, including man. These proteins are highly abundant in some tissues (e.g., brain) and have in general been found to bind lipids. Considering their homology to Ic, it is tempting to speculate that they may also be inhibitors of serine carboxypeptidases.