The SUG1 gene of Saccharomyces cerevisiae encodes a putative ATPase. Mutations in SUG1 were isolated as suppressors of a mutation in the transcriptional activation domain of GAL4. Sug1 was recently proposed to be a subunit of the RNA polymerase II holoenzyme and to mediate the association of transcriptional activators with holoenzyme. We show here that Sug1 is not a subunit of the holoenzyme, at least in its purified form, but of the 26S proteasome, a large complex of relative molecular-mass 2,000K that catalyses the ATP-dependent degradation of ubiquitin-protein conjugates. Sug1 co-purifies with the proteasome in both conventional and nickel-chelate affinity chromatography. Our observations account for the reduced ubiquitin-dependent proteolysis in sug1 mutants and suggest that the effects of sug1 mutations on transcription are indirect results of defective proteolysis.