Eukaryotic cells compartmentalize metabolic pathways in organelles to achieve optimal reaction conditions and avoid crosstalk with cytosolic factors. We found that cytosolic expression of norcoclaurine synthase (NCS), the enzyme that catalyzes the first committed reaction in benzylisoquinoline alkaloid biosynthesis, is toxic in Saccharomyces cerevisiae and, consequently, restricts (S)-reticuline production. We developed a compartmentalization strategy that alleviates NCS toxicity while promoting increased (S)-reticuline titer. This strategy is achieved through efficient targeting of toxic NCS to the peroxisome while, crucially, taking advantage of the free flow of metabolite substrates and products across the peroxisome membrane. We demonstrate that expression of engineered transcription factors can mimic the oleate response for larger peroxisomes, further increasing benzylisoquinoline alkaloid titer without the requirement for peroxisome induction with fatty acids. This work specifically addresses the challenges associated with toxic NCS expression and, more broadly, highlights the potential for engineering organelles with desired characteristics for metabolic engineering.