Mutations in mitochondrial DNA (mtDNA) have been reported in cancer and are involved in the pathogenesis of many mitochondrial diseases. Uracil-DNA glycosylase, encoded by the UNG1 gene in Saccharomyces cerevisiae, repairs uracil in DNA formed due to deamination of cytosine. Our study demonstrates that inactivation of the UNG1 gene leads to at least a 3-fold increased frequency of mutations in mtDNA compared with the wild-type. Using a Ung1p–green fluorescent protein (GFP) fusion construct, we demonstrate that yeast yUng1–GFP protein localizes to both mitochondria and the nucleus, indicating that Ung1p must contain both a mitochondrial localization signal (MLS) and a nuclear localization signal. Our study reveals that the first 16 amino acids at the N-terminus contain the yUng1p MLS. Deletion of 16 amino acids resulted in the yUng1p–GFP fusion protein being transported to the nucleus. We also investigated the intracellular localization of human hUng1p–GFP in yeast. Our data indicate that hUng1p–GFP predominately localizes to the mitochondria. Further analysis identified the N-terminal 16 amino acids as important for localization of hUng1 protein into the mitochondria. Expression of both yeast and human UNG1 cDNA suppressed the frequency of mitochondrial mutation in UNG1-deficient cells. However, expression of yUNG1 in wild-type cells increased the frequency of mutations in mtDNA, suggesting that elevated expression of Ung1p is mutagenic. An increase in the frequency of mitochondrial mutants was also observed when hUNG1 site-directed mutants (Y147C and Y147S) were expressed in mitochondria. Our study suggests that deamination of cytosine is a frequent event in S.cerevisiae mitochondria and both yeast and human Ung1p repairs deaminated cytosine in mitochondria.