RHO1, a member of the ras superfamily of genes, is located on chromosome XIII adjacent to MRP2, a gene coding for mitochondrial ribosomal protein (Madaule and Axel, 1985, Myers, et al. 1987) in Saccharomyces cerevisiae. Nucleotide sequence analysis demonstrated that RHO1 and MRP2 are transcribed convergently and the 3[superscript]' ends of the two coding sequences are separated by only 281 nucleotides (Madaule et al., 1987);The physical relationship between RHO1 and MRP2 was investigated at the transcriptional level by mapping the termini of both transcripts. RHO1 transcripts were found to possess extensive nontranslated regions with jagged initiation and polyadenylation sites whereas the nontranslated regions of MRP2 transcripts were of a length typically found in S. cerevisiae mRNAs. The 3[superscript]' termini of RHO1 and MRP2 transcripts were demonstrated to overlap by approximately 111 nucleotides;The functional significance of the transcriptional overlap at the 3[superscript]' ends of RHO1 and MRP2 was examined in vivo by truncating each gene a few nucleotides downstream from the translational stop codon, and genetically testing whether each truncated gene produced a functional protein. Both truncated alleles produced functional proteins indicating their expression is not dependent on the native 3[superscript]' non-translated region of the transcript. Elimination of the 111 nucleotide overlap by insertion of foreign yeast genomic DNA between RHO1 and MRP2 and overproduction of the antisense overlap by insertion of HIS3 near the TAG translation termination codon of RHO1 or MRP2 (Donahue et al., 1982) did not affect the general location of polyadenylation in MRP2 and RHO1 transcripts;Dissection of the intergenic region between RHO1 and MRP2 allowed the identification of two independent transcriptional terminator sequences capable of terminating URA3 transcription. Each terminator was demonstrated to efficiently terminate URA3 transcription at wild type RHO1 and MRP2 polyadenylation sites only in one orientation. The MRP2 terminator was identified as a 16 nucleotide alternating TA sequence by site directed mutagenesis. It was shown to be essential in a sequence specific manner yet not sufficient for transcription termination;Together, these findings demonstrate that RHO1 and MRP2 transcripts are independently processed regardless of their close physical association and they provide an interesting example of the evolutionary compaction of the S. cerevisiae genome.