Abstract: This invention is concerned with the specific processing of secreted proteins in genetically modified yeast cells. The yeast KEX1 gene was cloned and the KEX1 product was shown to be a serine protease, evidently a carboxypeptidase B-like protease. A probable site of processing of polypeptides by the KEX1 gene product is at the C-terminus of the .alpha. subunit of the killer toxin, where the mature toxin subunit is followed in the precursor by a pair of basic amino acid residues. Processing likely involves an endoprotease cut following these basic residues, and their subsequent C-terminal trimming by a carboxypeptidase. Consistent with the KEX1 product being this carboxypeptidase is the finding that it is also involved in .alpha.-factor pheromone production. In wildtype yeast, KEX1 is not essential for .alpha.-factor production, as the final hormone repeat in the prepro .alpha.-hormone precursor does not need C-terminal processing to form one copy of the active hormone. However, in a mutant strain where .