The detection of an endosymbiotic yeast in demosponges of the genus Chondrilla described here records the first such association within the phylum Porifera. The symbiont, interpreted as a yolk body in previous ultrastructural studies, is a chitinous-walled fission yeast. Chitin was detected by an immunocytochemical technique that labels its beta-1,4-N-acetyl-D-glucosamine residues. Abundant symbiotic yeast cells (4.4 +/- 2.3 cells per 10 microm2) transmitted from the soma through the oocytes to the fertilized eggs are directly propagated by vertical transmission in the female. Vertically transmitted yeast were detected in three Chondrilla species with disjunct biogeographical distributions: the Mediterranean, the Caribbean, and the Australian Pacific. Apparently these yeasts are not present in other demosponge genera. Therefore, the fungal endosymbiosis most likely evolved before or during the diversification of the genus Chondrilla.