ULP-1, ubiquitin-like protein-specific protease 1, initially processes Smt3 and also acts as a deconjugating enzyme for Smt3 [Saccharomyces cerevisiae (Baker's yeast)]. Covalent modification of cellular proteins by the ubiquitin-like modifier SUMO (small ubiquitin-like modifier) regulates various cellular processes, such as nuclear transport, signal transduction, stress responses and cell cycle progression. But, in contrast to ubiquination, sumoylation does not tag proteins for degradation by the 26S proteasome, but rather seems to enhance stability or modulate their subcellular compartmentalization. Once covalently attached to cellular targets, SUMO regulates protein:protein and protein:DNA interactions, as well as localization and stability of the target protein. Sumoylation occurs in most eukaryotic systems, and SUMO is highly conserved from yeast to humans. Where invertebrates have only a single SUMO gene termed SMT3, three members of the SUMO family have been identified in vertebrates: SUMO-1 and the close homologues SUMO-2 and SUMO-3. Three distinct steps can be distinguished in the SUMO modification pathway: 1) activation of SUMO, 2) transfer of SUMO to the conjugating enzyme, and 3) substrate modification. Since SUMO is synthesized as a precursor protein, a maturation step precedes the activation reaction. In yeast, C-terminal processing of the SUMO precursor is mediated by the processing protease Ulp1, which has an additional role in the deconjugation of SUMO-modified substrates. Mature SUMO is activated by SUMO-activating enzyme, an E1-like heterodimeric protein complex composed of Uba2 and Aos1. Ulp1 function has provided evidence that SUMO modification in yeast, as has been suspected for vertebrates, plays an important role in nucleocytoplasmic trafficking.