Yeast Btn2 facilitates the retrieval of specific proteins from late endosomes (LEs) to the Golgi, a process that may be adversely affected in Batten disease patients. We isolated the putative yeast orthologue of a human complex I deficiency gene, designated here as BTN3, as encoding a Btn2-interacting protein and negative regulator. First, yeast overexpressing BTN3 phenocopy the deletion of BTN2 and mislocalize certain trans-Golgi proteins, like Kex2 and Yif1, to the LE and vacuole, respectively. In contrast, the deletion of BTN3 results in a tighter pattern of protein localization to the Golgi. Second, BTN3 overexpression alters Btn2 localization from the IPOD compartment, which correlates with a sharp reduction in Btn2-mediated [URE3] prion curing. Third, Btn3 and the Snc1 v-SNARE compete for the same binding domain on Btn2, and this competition controls Btn2 localization and function. The inhibitory effects upon protein retrieval and prion curing suggest that Btn3 sequesters Btn2 away from its substrates, thus down-regulating protein trafficking and aggregation. Therefore Btn3 is a novel negative regulator of intracellular protein sorting, which may be of importance in the onset of complex I deficiency and Batten disease in humans.