We present photometric and spectroscopic data for the second microlensing e
vent seen toward the Small Magellanic Cloud (SMC), MACHO 98-SMC-1. The lens
is a binary. We resolve the caustic crossing and find that the source took
2 Delta t = 8.5 hr to transit the caustic. We measure the source temperatu
re T-eff = 8000 K both spectroscopically and from the color, (V-I)(0) simil
ar to 0.22. We find two acceptable binary-lens models. In the first, the so
urce crosses the caustic at phi = 43 degrees.2 and the unmagnified source m
agnitude is I-s = 22.15. The angle implies that the lens crosses the source
radius in time t* = Delta t sin phi = 2.92 hr. The magnitude (together wit
h the temperature) implies that the angular radius of the source is theta*
= 0.089 mu as. Hence, the proper motion is mu theta*/t* = 1.26 km s(-1) kpc
(-1). For the second solution, the corresponding parameters are phi = 30 de
grees.6, I-s = 21.81, t* = 2.15 hr, theta* = 0.104 mu as, and mu = theta*/t
* = 2.00 km s(-1) kpc(-1). Both proper-motion estimates are slower than 99.
5% of the proper motions expected for halo lenses. Both are consistent with
an ordinary binary lens moving at similar to 75-120 km s(-1) within the SM
C itself. We conclude that the lens is most likely in the SMC proper.