Squalene epoxidase (SE) is the target of terbinafine, which specifically inhibits the fungal enzyme in a noncompetitive manner. On the basis of functional homologies to p-hydroxybenzoate hydroxylase (PHBH) from Pseudomonas fluorescens, the Erg1 protein contains two flavin adenine dinucleotide (FAD) domains and one nucleotide binding (NB) site. By in vitro mutagenesis of the ERG1 gene, which codes for the Saccharomyces cerevisiae SE, we isolated erg1 alleles that conferred increased terbinafine sensitivity or that showed a lethal phenotype when they were expressed in erg1-knockout strain KLN1. All but one of the amino acid substitutions affected conserved FAD/nucleotide binding sites. The G(25)S, D(335)X (W, F, P), and G(210)A substitutions in the FADI, FADII, and NB sites, respectively, rendered the SE variants nonfunctional. The G(30)S and L(37)P variants exhibited decreased enzymatic activity, accompanied by a sevenfold increase in erg1 mRNA levels and an altered sterol composition, and rendered KLN1 more sensitive not only to allylamines (10 to 25 times) but also to other ergosterol biosynthesis inhibitors. The R(269)G variant exhibited moderately reduced SE activity and a 5- to 10-fold increase in allylamine sensitivity but no cross-sensitivity to the other ergosterol biosynthesis inhibitors. To further elucidate the roles of specific amino acids in SE function and inhibitor interaction, a homology model of Erg1p was built on the basis of the crystal structure of PHBH. All experimental data obtained with the sensitive Erg1 variants support this model. In addition, the amino acids responsible for terbinafine resistance, although they are distributed along the sequence of Erg1p, cluster on the surface of the Erg1p model, giving rise to a putative binding site for allylamines.