We describe a genetic system for monitoring the activity of a specific proteolytic enzyme by taking advantage of the properties of the yeast transcriptional activator GAL4. The GAL4 protein contains two separable and functionally essential domains: the amino-terminal DNA binding domain and the carboxyl-terminal transcriptional activating domain. We constructed two hybrid proteins by inserting between the DNA binding domain and the activation domain of GAL4 either (i) a self-cleaving protease (3C protease of a picornavirus, coxsackievirus B3) or (ii) a mutant form of the protease that is unable to cleave. We show that, although the hybrid protein containing the mutant protease activates transcription of GAL1-lacZ reporter gene, the hybrid protein bearing the wild-type protease is proteolytically cleaved and fails to activate transcription. Our approach to monitor the proteolytic activity could be used to develop simple genetic systems to study other proteases.