A 125-kDa glycoprotein exposed on the surface of Saccharomyces cerevisiae cells belongs to a class of eucaryotic membrane proteins anchored to the lipid bilayer by covalent linkage to an inositol-containing glycophospholipid. We have cloned the gene (GAS1) encoding the 125-kDa protein (Gas1p) and found that the function of Gas1p is not essential for cell viability. The nucleotide sequence of GAS1 predicts a 60-kDa polypeptide with a cleavable N-terminal signal sequence, potential sites for N- and O-linked glycosylation, and a C-terminal hydrophobic domain. Determination of the anchor attachment site revealed that the C-terminal hydrophobic domain of Gas1p is removed during anchor addition. However, this domain is essential for addition of the glycophospholipid anchor, since a truncated form of the protein failed to become attached to the membrane. Anchor addition was also abolished by a point mutation affecting the hydrophobic character of the C-terminal sequence. We conclude that glycophospholipid anchoring of Gas1p depends on the integrity of the C-terminal hydrophobic domain that is removed during anchor attachment.