IN yeast a type II integral membrane glycoprotein that is essential for transport vesicle budding from the endoplasmic reticulum (ER) is encoded by SEC12 (refs 1–3). SAR1 was discovered as a multicopy suppressor of the sec12-l^ts strain and encodes a GTPase of M_r 21,000 (21K) also essential for vesicle budding from the ER^4,5. Sari is a peripherally associated membrane protein which shows enhanced membrane binding in cells containing elevated levels of Secl2 protein (refs 6, 7). We show here that a purified fragment of Sec 12 promotes guanine-nucleotide dissociation from Sari whereas the purified mutant Secl2-l has only 15% of the wildtype activity. GTP hydrolysis by Sari is not enhanced by Secl2, but is stimulated more than 50-fold by a mixture of Sec 12 and Sec23, a GTPase-activating protein specific for Sari (ref. 8). We propose that Sec 12 catalyses Sari guanine-nucleotide exchange in a process that recruits Sari to a vesicle formation site on the ER membrane.