The Saccharomyces cerevisiae Cdc42 protein, a member of the Ras superfamily of low-molecular-weight GTP-binding proteins, is involved in the control of cell polarity during the yeast cell cycle. This protein has a consensus sequence (CAAX) for geranylgeranyl modification and is likely to be associated, at least in part, with cell membranes. Using cell fractionation and immunolocalization techniques, we have investigated the subcellular localization of Cdc42p. Cdc42p was found in both soluble and particulate pools, and neither its abundance nor its distribution varied through the cell cycle. The particulate form of Cdc42p could be solubilized with detergents but not with NaCl or urea, suggesting that it is tightly associated with membranes. An increase in soluble Cdc42p was observed in a geranylgeranyltransferase mutant strain (cdc43-2ts) grown at the restrictive temperature. In addition, Cdc42p from a cdc42C188S mutant strain (that has an alteration at the prenylation consensus site) was almost exclusively in the soluble fraction, suggesting that membrane localization is dependent on geranylgeranyl modification at Cys-188. Immunofluorescence and immunoelectron microscopy experiments demonstrated that Cdc42p localizes to the plasma membrane in the vicinity of secretory vesicles that were found at the site of bud emergence, at the tips and sides of enlarging buds, and within mating projections (shmoo tips) in alpha-factor-arrested cells. These results indicate that Cdc42p is localized to the bud site early in the cell cycle and suggest that this localization is critical for the selection of the proper site for bud emergence and for polarized cell growth.