The VAMP-associated proteins termed VAP are a small gene family of proteins characterised by the presence of an N-terminal major sperm protein (MSP) domain. The P56S mutation of the B isoform (VAPB) has been linked to late-onset amyotrophic lateral sclerosis (ALS8) and its expression causes formation of large ER aggregates. Overexpression of the wild-type A isoform (VAPA) but not the B isoform (VAPB), inhibited ER-to-Golgi transport of membrane proteins. This transport block by VAPA was primarily due to decreased segregation of membrane cargo into ER vesicles. We also found that VAPA inhibited lateral diffusion of membrane proteins, most likely through its stable association with microtubules. The MSP domain of VAP is known to interact with the FFAT motif (two phenylalanines in an acidic tract) of proteins involved in sterol regulation. Overexpression of FFAT restored ER-to-Golgi transport and lateral diffusion of membrane proteins, and resolved the large ER aggregates in VAPB-P56S. Application of a FFAT peptide restored in vitro ER vesicle budding and disrupted VAP-microtubule association. Thus, overexpression of the two VAP isoforms causes retention of ER membrane proteins by impeding lateral diffusion and their incorporation into transport vesicles. This inhibitory effect can be relieved by expression of the FFAT motif.