The anchors of mature glycosylphosphatidylinositol (GPI)-anchored proteins of Saccharomyces cerevisiae contain either ceramide or diacylglycerol with a C26:0 fatty acid in the sn2 position. The primary GPI lipid added to newly synthesized proteins in the ER consists of diacylglycerol with conventional C16 and C18 fatty acids. Here we show that GUP1 is essential for the synthesis of the C26:0-containing diacylglycerol anchors. Gup1p is an ER membrane protein with multiple membrane-spanning domains harboring a motif that is characteristic of membrane-bound O-acyl-transferases (MBOAT). Gup1Delta cells make normal amounts of GPI proteins but most mature GPI anchors contain lyso-phosphatidylinositol, and others possess phosphatidylinositol with conventional C16 and C18 fatty acids. The incorporation of the normal ceramides into the anchors is also disturbed. As a consequence, the ER-to-Golgi transport of the GPI protein Gas1p is slow, and mature Gas1p is lost from the plasma membrane into the medium. Gup1Delta cells have fragile cell walls and a defect in bipolar bud site selection. GUP1 function depends on the active site histidine of the MBOAT motif. GUP1 is highly conserved among fungi and protozoa and the gup1Delta phenotype is partially corrected by GUP1 homologues of Aspergillus fumigatus and Trypanosoma cruzi.