The ammonium permease Mep2 is required for the induction of pseudohyphal growth, a process in Saccharomyces cerevisiae that occurs in response to nutrient limitation. Mep2 has both a transport and a regulatory function, supporting models in which Mep2 acts as a sensor of ammonium availability. Potentially similar ammonium permease-dependent regulatory cascades operate in other fungi, and they may also function in animals via the homologous Rh proteins; however, little is known about the molecular mechanisms that mediate ammonium sensing. We show that Mep2 is localized to the cell surface during pseudohyphal growth, and it is required for both filamentous and invasive growth. Analysis of site-directed Mep2 mutants in residues lining the ammonia-conducting channel reveal separation of function alleles (transport and signaling defective; transport-proficient/signaling defective), indicating transport is necessary but not sufficient to sense ammonia. Furthermore, Mep2 overexpression enhances differentiation under normally repressive conditions and induces a transcriptional profile that is consistent with activation of the mitogen-activated protein (MAP) kinase pathway. This finding is supported by epistasis analysis establishing that the known role of the MAP kinase pathway in pseudohyphal growth is linked to Mep2 function. Together, these data strengthen the model that Mep2-like proteins are nutrient sensing transceptors that govern cellular differentiation.