Autophagy, an intracellular degradation system, is highly conserved among eukaryotes from yeast to mammalian cells. In the yeast Saccharomyces cerevisiae, most Atg (autophagy-related) proteins, which are essential for autophagosome formation, are recruited to a restricted region close to the vacuole, termed the vacuole-isolation membrane contact site (VICS), upon induction of autophagy. Subsequently, the isolation membrane (IM) expands and sequesters cytoplasmic materials to become a closed autophagosome. In S. cerevisiae, the ubiquitin-like protein Atg8 is C-terminally conjugated to the phospholipid phosphatidylethanolamine (PE) to generate Atg8-PE. During autophagosome formation, Atg8-PE is cleaved by Atg4 to release delipidated Atg8 (Atg8G116) and PE. Although delipidation of Atg8-PE is important for autophagosome formation, it remains controversial whether the delipidation reaction is required for targeting of Atg8 to the VICS or for subsequent IM expansion. We used an IM visualization technique to clearly demonstrate that delipidation of Atg8-PE is dispensable for targeting of Atg8 to the VICS, but required for IM expansion. Moreover, by overexpressing Atg8G116, we showed that the delipidation reaction of Atg8-PE by Atg4 plays an important role in efficient expansion of the IM other than supplying unlipidated Atg8G116. Finally, we suggested the existence of biological membranes at the Atg8-labeled structures in Atg8-PE delipidation-defective cells, but not at those in atg2Δ cells. Taken together, it is likely that Atg2 is involved in localization of biological membranes to the VICS, where Atg4 is responsible for IM expansion.