Shwachman-Diamond syndrome (SDS; OMIM 260400) is an autosomal recessive disorder with clinical features that include pancreatic exocrine insufficiency, hematological dysfunction and skeletal abnormalities. Here, we report identification of disease-associated mutations in an uncharacterized gene, SBDS, in the interval of 1.9 cM at 7q11 previously shown to be associated with the disease. We report that SBDS has a 1.6-kb transcript and encodes a predicted protein of 250 amino acids. A pseudogene copy (SBDSP) with 97% nucleotide sequence identity resides in a locally duplicated genomic segment of 305 kb. We found recurring mutations resulting from gene conversion in 89% of unrelated individuals with SDS (141 of 158), with 60% (95 of 158) carrying two converted alleles. Converted segments consistently included at least one of two pseudogene-like sequence changes that result in protein truncation. SDBS is a member of a highly conserved protein family of unknown function with putative orthologs in diverse species including archaea and eukaryotes. Archaeal orthologs are located within highly conserved operons that include homologs of RNA-processing genes, suggesting that SDS may be caused by a deficiency in an aspect of RNA metabolism that is essential for development of the exocrine pancreas, hematopoiesis and chrondrogenesis.