Glycosylphosphatidylinositol (GPI) anchors are attached to newly synthesized proteins in the ER by a transamidation reaction during which a C-terminal GPI attachment signal is replaced by a preformed GPI precursor lipid. This reaction depends on GAA1 and GPI8, the latter belonging to a novel cysteine protease family. Homologies between this family and other Cys proteinases, such as caspases, pointed to Cys199 and His157 as potential active site residues. Indeed, gpi8 alleles mutated at Cys199 or His157 are nonfunctional, i.e., they are unable to suppress the lethality of Deltagpi8 mutants. The overexpression of these nonfunctional alleles in wild-type cells leads to the accumulation of the free GPI precursor lipid CP2, delays the maturation of the GPI protein Gas1p, and arrests cell growth. The dominant negative effect of the Cys199 mutant cannot be overcome by the simultaneous overexpression of Gaa1p. Most GPI8 alleles mutated in other conserved regions of the protein can complement the growth defect of Deltagpi8, but nevertheless accumulate CP2. CP2 accumulation, a delay in Gas1p maturation and a slowing of cell growth can also be observed when Gpi8p is depleted to 50% of its normal level in wild-type cells. The dominant negative effect of nonfunctional and partially functional mutant alleles can best be explained by assuming that Gpi8p works as part of a homo- or heteropolymeric complex.