The flavin-containing monooxygenase from yeast (yFMO) catalyzes the O2- and NADPH-dependent oxidations of biological thiols, including oxidation of glutathione to glutathione disulfide (GSSG). Glutathione and GSSG form the principle redox buffering system in the cell, with the endoplasmic reticulum (ER) being more oxidizing than the cytoplasm. Proper folding of disulfide-bonded proteins in the ER depends on an optimum redox buffer ratio. Here we show that yFMO is localized to the cytoplasmic side of the ER membrane. We used a gene knockout strain and expression vectors to show that yFMO has a major effect on the generation of GSSG transported into the ER. The enzyme is required for the proper folding, in the ER, of test proteins with disulfide bonds, whereas those without disulfide bonds are properly folded independently of yFMO in the ER or in the cytoplasm.