The degree of acyl chain desaturation of membrane lipids is a critical determinant of membrane fluidity. Temperature-sensitive mutants of the single essential acyl chain desaturase, Ole1p, of yeast have previously been isolated in screens for mitochondrial inheritance mutants (Stewart, L.C. and Yaffe, M.P. (1991). J. Cell Biol. 115, 1249-1257). We now report that the mutant desaturase relocalizes from its uniform ER distribution to a more punctuate localization at the cell periphery upon inactivation of the enzyme. This relocalization takes place within minutes at nonpermissive conditions, a time scale at which mitochondrial morphology and inheritance is not yet affected. Relocalization of the desaturase is fully reversible and does not affect the steady state localization of other ER resident proteins or the kinetic and fidelity of the secretory pathway, indicating a high degree of selectivity for the desaturase. Relocalization of the desaturase is energy independent but is lipid dependent because it is rescued by supplementation with unsaturated fatty acids. Relocalization of the desaturase is also observed in cells treated with inhibitors of the enzyme, indicating that it is independent of temperature-induced alterations of the enzyme. In the absence of desaturase function, lipid synthesis continues, resulting in the generation of lipids with saturated acyl chains. A model is discussed in which the accumulation of saturated lipids in a microdomain around the desaturase could induce the observed segregation and relocalization of the enzyme.