The ERD2 gene, which encodes the yeast HDEL (His-Asp-Glu-Leu) receptor, is essential for growth (Semenza, J. C., K. G. Hardwick, N. Dean, and H. R. B. Pelham. 1990. Cell. 61:1349-1357; Lewis, M. J., D. J. Sweet, and H. R. B. Pelham. 1990. Cell. 61:1359-1363). SED5, when present in multiple copies, enables cells to grow in the absence of Erd2p. Sequence analysis of SED5 reveals no significant homology with ERD2 or other known genes. We have raised antibodies to Sed5p which specifically recognize a 39-kD integral membrane protein. A stretch of hydrophobic residues at the COOH terminus is predicted to hold Sed5p on the cytoplasmic face of intracellular membranes. Cells that are depleted of Sed5p are unable to transport carboxypeptidase Y to the Golgi complex, and stop growing after a dramatic accumulation of ER membranes and vesicles. We conclude that the SED5 gene is essential for growth and that Sed5p is required for ER to Golgi transport. When Sed5p is overexpressed the efficiency of ER to Golgi transport is reduced, vesicles accumulate, and cellular morphology is perturbed. Immunofluorescence studies reveal that the bulk of Sed5p is not found on ER membranes but on punctate structures throughout the cytoplasm, the number of which increases upon SED5 overexpression. We suggest that Sed5p has an essential role in vesicular transport between ER and Golgi compartments and that it may itself cycle between these organelles.