The genomic architecture of the budding yeast Saccharomyces cerevisiae is typical of other eukaryotes in that genes are spatially organized into discrete and nonoverlapping units. Inherent in this organizational model is the assumption that protein-coding sequences do not overlap completely. Here, we present evidence to the contrary, defining a previously overlooked yeast gene, NAG1 (for nested antisense gene) nested entirely within the coding sequence of the YGR031W open reading frame in an antisense orientation on the opposite strand. NAG1 encodes a 19-kDa protein, detected by Western blotting of hemagglutinin (HA)-tagged Nag1p with anti-HA antibodies and by beta-galactosidase analysis of a NAG1-lacZ fusion. NAG1 is evolutionarily conserved as a unit with YGR031W in bacteria and fungi. Unlike the YGR031WP protein product, however, which localizes to the mitochondria, Nag1p localizes to the cell periphery, exhibiting properties consistent with those of a plasma membrane protein. Phenotypic analysis of a site-directed mutant (nag1-1) disruptive for NAG1 but silent with respect to YGR031W, defines a role for NAG1 in yeast cell wall biogenesis; microarray profiling of nag1-1 indicates decreased expression of genes contributing to cell wall organization, and the nag1-1 mutant is hypersensitive to the cell wall-perturbing agent calcofluor white. Furthermore, production of Nag1p is dependent upon the presence of the cell wall integrity pathway mitogen-activated protein kinase Slt2p and its downstream transcription factor Rlm1p. Thus, NAG1 is important for two reasons. First, it contributes to yeast cell wall biogenesis. Second, its genomic context is novel, raising the possibility that other nested protein-coding genes may exist in eukaryotic genomes.