The unfolded protein response (UPR) in the endoplasmic reticulum (ER) is a highly conserved protein-quality-control mechanism critical for cells to make survival-or-death decisions under ER-stress conditions. However, how UPR sensors are activated remains unclear. Here, we report that ER luminal protein canopy homolog 2 (CNPY2) is released from grp78 upon ER stress. Free CNPY2 then engages protein kinase R-like ER kinase (PERK) to induce expression of the transcription factor C/EBP homologous protein (CHOP), thereby initiating the UPR. Indeed, deletion of CNPY2 blocked the PERK-CHOP pathway and protected mice from UPR-induced liver damage and steatosis. Additionally, CNPY2 is transcriptionally upregulated by CHOP in a forward-feed loop to further enhance UPR signaling. These findings demonstrate the critical roles of CNPY2 in ER stress and suggest that CNPY2 is a potential new therapeutic target for UPR-related diseases such as metabolic disorders, inflammation and cancer.