Mating factor alpha isolated from yeast culture filtrates was radiolabeled by lactoperoxidase-catalyzed iodination, with full retention of biological activity. The (125)I-labeled alpha factor bound at low levels to cells of both mating types (a and alpha) but not to spheroplasts. Despite the low level of binding, large quantities of alpha factor activity were lost by incubation with a cells and a spheroplasts, but not with alpha or a/alpha diploid cells. The amount of activity removed from the culture medium was much larger than the amount of (125)I-labeled alpha factor bound to the cells and was correlated with the appearance of radiolabeled derivatives separable by thin-layer chromatography. Upon removal of the cell wall of alpha and a/alpha cells, the spheroplasts acquired the ability to remove alpha factor activity from culture medium, to generate derivatives of alpha factor, and to respond to alpha factor by a morphological alteration resembling the response of a cells. These findings raise the possibility that the specific enzyme capable of altering alpha factor, possibly a peptidase, is associated with both a and alpha cells but is masked by the alpha cell wall. This suggestion is consistent with the observation that the alpha factor activities of G(1) arrest and cell elongation were blocked by preincubation of a cells with the protease inhibitor Trasylol.