Btn2p, a novel coiled-coil protein, is up-regulated in btn1delta yeast strains, and this up-regulation is thought to contribute to maintaining a stable vacuolar pH in btn1delta strains (D. A. Pearce, T. Ferea, S. A. Nosel, B. Das, and F. Sherman, Nat. Genet. 22:55-58, 1999). We now report that Btn2p interacts biochemically and functionally with Rsglp, a down-regulator of the Can1p arginine and lysine permease. Rsglp localizes to a distinct structure toward the cell periphery, and strains lacking Btn2p (btn2delta strains) fail to correctly localize Rsg1p. btn2delta strains, like rsg1delta strains, are sensitive for growth in the presence of the arginine analog canavanine. Furthermore, btn2delta strains, like rsg1delta strains, demonstrate an elevated rate of uptake of [14C]arginine, which leads to increased intracellular levels of arginine. Overexpression of BTN2 results in a decreased rate of arginine uptake. Collectively, these results indicate that altered levels of Btn2p can modulate arginine uptake through localization of the Can1p-arginine permease regulatory protein, Rsglp. Our original identification of Btn2p was that it is up-regulated in the btn1delta strain which serves as a model for the lysosomal storage disorder Batten disease. Btnlp is a vacuolar/lysosomal membrane protein, and btn1delta suppresses both the canavanine sensitivity and the elevated rate of uptake of arginine displayed by btn2delta rsg1delta strains. We conclude that Btn2p interacts with Rsglp and modulates arginine uptake. Up-regulation of BTN2 expression in btn1delta strains may facilitate either a direct or indirect effect on intracellular arginine levels.