A search for Saccharomyces cerevisiae proteins that interact with actin in the two-hybrid system and a screen for mutants that affect the bipolar budding pattern identified the same gene, AIP3/BUD6. This gene is not essential for mitotic growth but is necessary for normal morphogenesis. MATa/alpha daughter cells lacking Aip3p place their first buds normally at their distal poles but choose random sites for budding in subsequent cell cycles. This suggests that actin and associated proteins are involved in placing the bipolar positional marker at the division site but not at the distal tip of the daughter cell. In addition, although aip3 mutant cells are not obviously defective in the initial polarization of the cytoskeleton at the time of bud emergence, they appear to lose cytoskeletal polarity as the bud enlarges, resulting in the formation of cells that are larger and rounder than normal. aip3 mutant cells also show inefficient nuclear migration and nuclear division, defects in the organization of the secretory system, and abnormal septation, all defects that presumably reflect the involvement of Aip3p in the organization and/or function of the actin cytoskeleton. The sequence of Aip3p is novel but contains a predicted coiled-coil domain near its C terminus that may mediate the observed homo-oligomerization of the protein. Aip3p shows a distinctive localization pattern that correlates well with its likely sites of action: it appears at the presumptive bud site prior to bud emergence, remains near the tips of small bund, and forms a ring (or pair of rings) in the mother-bud neck that is detectable early in the cell cycle but becomes more prominent prior to cytokinesis. Surprisingly, the localization of Aip3p does not appear to require either polarized actin or the septin proteins of the neck filaments.