Khd1p (KH-domain protein 1) is a yeast RNA-binding protein highly homologous to mammalian hnRNP K. Khd1p associates with hundreds of potential mRNA targets including a bud-localized ASH1 mRNA and mRNAs encoding membrane-associated proteins such as Mid2p and Mtl1p. While Khd1p negatively regulates gene expression of Ash1p by translational repression, Khd1p positively regulates gene expression of Mtl1p by mRNA stabilization. To investigate how Khd1p regulates the stability of MTL1 mRNA, we searched for cis-acting elements and trans-acting factors controlling MTL1 mRNA stability. Regional analysis revealed that partial deletion of the coding sequences of MTL1 mRNA restored the decreased MTL1 mRNA and protein levels in khd1Δ mutants. This region, encompassing nucleotides 532 to 1032 of the Mtl1p coding sequence, contains CNN repeats that direct Khd1p-binding. Insertion of this sequence into other mRNAs conferred mRNA instability in khd1Δ mutants. We further searched for factors involved in the destabilization of MTL1 mRNA. Mutations in CCR4 and CAF1/POP2, encoding major cytoplasmic deadenylases, or of SKI genes, which code for components of a complex involved in 3' to 5' degradation, did not restore the decreased MTL1 mRNA levels caused by khd1Δ mutation. However, mutations in DCP1 and DCP2, encoding a decapping enzyme complex, and XRN1, encoding a 5'-3' exonuclease, restored the decreased MTL1 mRNA levels. Furthermore, Khd1p colocalized with Dcp1p in processing bodies, cytoplasmic sites for mRNA degradation. Our results suggest that MTL1 mRNA bears a cis-acting element involved in destabilization by the decapping enzyme and the 5'-3' exonuclease, and Khd1p stabilizes MTL1 mRNA through binding to this element.