The Yap1 transcription factor regulates hydroperoxide homeostasis in S. cerevisiae. Yap1 is activated by oxidation when hydroperoxide levels increase. We show that Yap1 is not directly oxidized by hydroperoxide. We identified the glutathione peroxidase (GPx)-like enzyme Gpx3 as a second component of the pathway, serving the role of sensor and transducer of the hydroperoxide signal to Yap1. When oxidized by H2O2, Gpx3 Cys36 bridges Yap1 Cys598 by a disulfide bond. This intermolecular disulfide bond is then resolved into a Yap1 intramolecular disulfide bond, the activated form of the regulator. Thioredoxin turns off the pathway by reducing both sensor and regulator. These data reveal a redox-signaling function for a GPx-like enzyme and elucidate a eukaryotic hydroperoxide-sensing mechanism. Gpx3 is thus a hydroperoxide receptor and redox-transducer.