Candida pelliculosa var. acetaetherius is a strain of yeast which can utilize cellobiose as the carbon source. From a gene library prepared from this yeast, the beta-glucosidase gene has been cloned in a S. cerevisiae host using a chromogenic substrate, 5-bromo-4-chloro-3-indolyl-beta-glucoside as an indicator. It was proved by Southern analysis that the DNA fragment carrying the beta-glucosidase gene originated from C. pelliculosa. beta-Glucosidase produced by S. cerevisiae transformants was secreted into the periplasmic space. In Candida, beta-glucosidase was not induced by cellobiose but was derepressed by lowering the concentration of glucose. The regulation of beta-glucosidase synthesis in S. cerevisiae carrying the cloned beta-glucosidase was not clear compared with that in Candida, however, the enzyme activity in low glucose medium (0.05%) was reproducibly higher than in high glucose medium (2%). We have found the sequence that controls the expression of the beta-glucosidase gene negatively in S. cerevisiae.