Proteins with a CAAX motif, such as Ras, a-factor and the *gamma*-subunit of heterotrimeric G-protein are posttranslationally modified by prenylation of the cysteine, proteolytic removal of the terminal three residues and methyl-esterification of the newly formed carboxyl group. We previously reported characterization of a novel, farnesylation dependent endoproteolytic activity named RACE (Ras and a-factor Converting Enzyme). We have developed an autocrine arrest, sensitized selection for mutants defective in a-factor processing that uses ectopic expression of the a-factor receptor in a cells and a CAAX sequence that is inefficiently proteolyzed. We identified and characterized 127 mutants. 24 of these mutants had altered substrate specificity, of which 2 were novel alleles of RAM1. The remaining 22 had mutations in a single new gene, named AFC1 (a-factor convertase). Afc1p is the first identified farnesylation-dependent zinc metalloprotease. It appears to be an integral membrane protein that localized to internal membranes. Mutations in the HEXXH motif, characteristic of zinc metalloproteases, destroys Afc1p function. Null alleles of AFC1 are viable and produce lower levels of mature a-factor. The residual pheromone produced by these cells implies the existence of multiple prenyl-dependent proteases, which will be discussed. Ras2p with the proteolysis defective C-terminus has altered biological properties suggesting that CAAX proteolysis is important for Ras function.