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Glutathione (GSH) synthetase (Gsh2) catalyzes the ATP-dependent synthesis of GSH from gamma-glutamylcysteine (gamma-Glu-Cys) and glycine. GSH2, encoding the Saccharomyces cerevisiae enzyme, was isolated and used to construct strains that either lack or overproduce Gsh2. The identity of GSH2 was confirmed by the following criteria: 1) the predicted Gsh2 protein shared 37-39% identity and 58-60% similarity with GSH synthetases from other eukaryotes, 2) increased gene dosage of GSH2 resulted in elevated Gsh2 enzyme activity, 3) a strain deleted for GSH2 was dependent on exogenous GSH for wild-type growth rates, and 4) the gsh2 mutant lacked GSH and accumulated the dipeptide gamma-Glu-Cys intermediate in GSH biosynthesis. Overexpression of GSH2 had no effect on cellular GSH levels, whereas overexpression of GSH1, encoding the enzyme for the first step in GSH biosynthesis, lead to an approximately twofold increase in GSH levels, consistent with Gsh1 catalyzing the rate-limiting step in GSH biosynthesis. In contrast to a strain deleted for GSH1, which lacks both GSH and gamma-Glu-Cys, the strain deleted for GSH2 was found to be unaffected in mitochondrial function as well as resistance to oxidative stress induced by hydrogen peroxide, tert-butyl hydroperoxide, and the superoxide anion. Furthermore, gamma-Glu-Cys was at least as good as GSH in protecting yeast cells against an oxidant challenge, providing the first evidence that gamma-Glu-Cys can act as an antioxidant and substitute for GSH in a eukaryotic cell. However, the dipeptide could not fully substitute for the essential function of GSH in the cell as shown by the poor growth of the gsh2 mutant on minimal medium. We suggest that this function may be the detoxification of harmful intermediates that are generated during normal cellular metabolism.