Heterologous gene expression in yeast can be increased up to several hundred-fold by expressing a foreign gene as a fusion to the ubiquitin gene. An endogenous yeast endoprotease (Ub-Xase) removes the ubiquitin from the fusion product to produce the authentic protein. The utility of this technique has been demonstrated by expression of three different proteins in yeast as both unfused and ubiquitin-fused forms: 1) the alpha subunit of the mammalian stimulating G-protein of the adenylate cyclase complex (Gs alpha); 2) a soluble fragment of the T cell receptor protein (sCD4); and 3) the protease domain of human urokinase (UKP). The sequence specificity of the Ub-Xase was demonstrated by mutagenesis of the carboxyl-terminal glycine of ubiquitin to an alanine, which inhibited ubiquitin removal in vivo. Processing of the ubiquitin-Gs alpha fusion protein (ub-Gs alpha) in vivo resulted in Gs alpha which could be reconstituted in mammalian membrane preparations and had the same specific activity as the authentic Gs alpha expressed in yeast. The yeast Ub-Xase has also been shown to work in vitro by the processing of a ub-sCD4 fusion protein synthesized in Escherichia coli. This technology should greatly enhance the utility of yeast for heterologous protein production.