The two homologous genes GPD1 and GPD2 encode the isoenzymes of NAD-dependent glycerol 3-phosphate dehydrogenase in the yeast Saccharomyces cerevisiae. Previous studies showed that GPD1 plays a role in osmoadaptation since its expression is induced by osmotic stress and gpd1 delta mutants are osmosensitive. Here we report that GPD2 has an entirely different physiological role. Expression of GPD2 is not affected by changes in external osmolarity, but is stimulated by anoxic conditions. Mutants lacking GPD2 show poor growth under anaerobic conditions. Mutants deleted for both GPD1 and GPD2 do not produce detectable glycerol, are highly osmosensitive and fail to grow under anoxic conditions. This growth inhibition, which is accompanied by a strong intracellular accumulation of NADH, is relieved by external addition of acetaldehyde, an effective oxidizer of NADH. Thus, glycerol formation is strictly required as a redox sink for excess cytosolic NADH during anaerobic metabolism. The anaerobic induction of GPD2 is independent of the HOG pathway which controls the osmotic induction of GPD1. Expression of GPD2 is also unaffected by ROX1 and ROX3, encoding putative regulators of hypoxic and stress-controlled gene expression. In addition, GPD2 is induced under aerobic conditions by the addition of bisulfite which causes NADH accumulation by inhibiting the final, reductive step in ethanol fermentation and this induction is reversed by addition of acetaldehyde. We conclude that expression of GPD2 is controlled by a novel, oxygen-independent, signalling pathway which is required to regulate metabolism under anoxic conditions.