Linker histone H1 plays a crucial role in various biological processes, including nucleosome stabilization, high-order chromatin structure organization, gene expression, and epigenetic regulation in eukaryotic cells. Unlike higher eukaryotes, little about the linker histone in Saccharomyces cerevisiae is known. Hho1 and Hmo1 are two long-standing controversial histone H1 candidates in budding yeast. In this study, we directly observed at the single-molecule level that Hmo1, but not Hho1, is involved in chromatin assembly in the yeast nucleoplasmic extracts (YNPE), which can replicate the physiological condition of the yeast nucleus. The presence of Hmo1 facilitates the assembly of nucleosomes on DNA in YNPE, as revealed by single-molecule force spectroscopy. Further single-molecule analysis showed that the lysine-rich C-terminal domain (CTD) of Hmo1 is essential for the function of chromatin compaction, while the second globular domain at the C-terminus of Hho1 impairs its ability. In addition, Hmo1, but not Hho1, forms condensates with double-stranded DNA via reversible phase separation. The phosphorylation fluctuation of Hmo1 coincides with metazoan H1 during the cell cycle. Our data suggest that Hmo1, but not Hho1, possesses some functionality similar to that of linker histone in Saccharomyces cerevisiae, even though some properties of Hmo1 differ from those of a canonical linker histone H1. Our study provides clues for the linker histone H1 in budding yeast and provides insights into the evolution and diversity of histone H1 across eukaryotes. IMPORTANCE There has been a long-standing debate regarding the identity of linker histone H1 in budding yeast. To address this issue, we utilized YNPE, which accurately replicate the physiological conditions in yeast nuclei, in combination with total internal reflection fluorescence microscopy and magnetic tweezers. Our findings demonstrated that Hmo1, rather than Hho1, is responsible for chromatin assembly in budding yeast. Additionally, we found that Hmo1 shares certain characteristics with histone H1, including phase separation and phosphorylation fluctuations throughout the cell cycle. Furthermore, we discovered that the lysine-rich domain of Hho1 is buried by its second globular domain at the C-terminus, resulting in the loss of function that is similar to histone H1. Our study provides compelling evidence to suggest that Hmo1 shares linker histone H1 function in budding yeast and contributes to our understanding of the evolution of linker histone H1 across eukaryotes.