Protein farnesyltransferase (PFTase) catalyzes the alkylation of cysteine in C-terminal CaaX sequences of a variety of proteins, including Ras, nuclear lamins, large G-proteins, and phosphodiesterases, by farnesyl diphosphate (FPP). These modifications enhance the ability of the proteins to associate with membranes and are essential for their respective functions. The binding mechanism for yeast PFTase was deduced from a combination of steady-state kinetic and equilibrium studies. Rates for prenylation were measured by a continuous assay based on an enhancement in the fluorescence of the dansyl moiety in pentapeptide dansyl-GCVIA upon farnesylation by FPP. Unreactive substrate analogs for FPP and dansyl-GCVIA gave steady-state inhibition patterns for the dead-end inhibitors typical of an ordered sequential mechanism in which FPP adds to the enzyme before the peptide. The kinetic analysis was complicated by substrate inhibition for dansyl-GCVIA. The substrate inhibition was reversed at high concentrations of FPP, indicating that formation of the nonproductive enzyme--peptide complex is competitive with respect to FPP. Progress curves were fitted to an integrated form of the rate expression to determine the catalytic constant, kcat = 4.5 +/- 1.9 s-1, and the Michaelis constant for dansyl-GCVIA, KMD = 0.9 +/- 0.1 microM. The dissociation constant for FPP, KD = 75 +/- 15 nM, was measured using a membrane retention assay.