Native disulfide bond formation in the endoplasmic reticulum is a critical process in the maturation of many secreted and outer membrane proteins. Although a large number of proteins have been implicated in this process, it is clear that our current understanding is far from complete. Here we describe the functional characterization of a new 18-kDa protein (ERp18) related to protein-disulfide isomerase. We show that ERp18 is located in the endoplasmic reticulum and that it contains a single catalytic domain with an unusual CGAC active site motif and a probable insertion between beta3 and alpha3 of the thioredoxin fold. From circular dichroism and NMR measurements, ERp18 is well structured and undergoes only a minor conformational change upon dithioldisulfide exchange in the active site. Guanidinium chloride denaturation curves indicate that the reduced form of the protein is more stable than the oxidized form, suggesting that it is involved in disulfide bond formation. Furthermore, in vitro ERp18 possesses significant peptide thiol-disulfide oxidase activity, which is dependent on the presence of both active site cysteine residues. This activity differs from that of the human PDI family in that under standard assay conditions it is limited by substrate oxidation and not by enzyme reoxidation. A putative physiological role for Erp18 in native disulfide bond formation is discussed.