Zn substitution for Cu in YBa2Cu3O7 rapidly reduces the superconducting transition temperature, Tc. Superconductivity is quenched between x=0.08 (T =30 K) and x=0.10. The normal state paramagnetism grows with Zn substu-tition, presumably due to increased localization on the Cu sublattice. Susceptibility studies of oxygen depleted (nonsuperconducting) Zn-substituted samples support this. Strong non-linear isothermal magnetization suggesting an internal magnetic field is found at T=4.2 K in samples with Zn concentration near to the critical value for suppression of superconductivity. The results are discussed in terms of increased localization of d-electrons on the Cu sites with increasing Zn concentration, which is consistent with recent EPR data.