The effect of oxygen on squalene epoxidase activity in Saccharomyces cerevisiae was investigated. In cells grown in standing cultures, the epoxidase was localized mainly in the XmitochondrialX fraction. Upon aeration, enzyme activity increased and the newly formed enzyme was associated with the XmicrosomalX fraction. At 0.03% (vol/vol) oxygen, epoxidase levels doubled, whereas the ergosterol level was only slightly increased. Cycloheximide inhibited the increase in epoxidase under these conditions. An apparent Km for oxygen of 0.38% (vol/vol) was determined from a crude particulate preparation for the epoxidase.