X-linked inhibitor of apoptosis protein (XIAP), the most potent member of the inhibitor of apoptosis protein (IAP) family, plays a crucial role in the regulation of apoptosis. XIAP is structurally characterized by three baculovirus IAP repeat (BIR) domains that mediate binding to and inhibition of caspases and a RING domain that confers ubiquitin ligase activity. The caspase inhibitory activity of XIAP can be eliminated by the second mitochondria-derived activator of caspases (Smac)/direct IAP-binding protein with low pI (DIABLO) during apoptosis. Here we report the identification and characterization of a novel isoform of Smac/DIABLO named Smac3, which is generated by alternative splicing of exon 4. Smac3 contains an NH2-terminal mitochondrial targeting sequence required for mitochondrial targeting of Smac3 and an IAP-binding motif essential for Smac3 binding to XIAP. Smac3 is released from mitochondria into the cytosol in response to apoptotic stimuli, where it interacts with the second and third BIR domains of XIAP. Smac3 disrupts processed caspase-9 binding to XIAP, promotes caspase-3 activation, and potentiates apoptosis. Strikingly, Smac3, but not Smac/DIABLO, accelerates XIAP auto-ubiquitination and destruction. Smac3-stimulated XIAP ubiquitination is contingent upon the physical association of XIAP with Smac3 and an intact RING domain of XIAP. Smac3-accelerated XIAP destabilization is, at least in part, attributed to its ability to enhance XIAP ubiquitination. Our study demonstrates that Smac3 is functionally additive to, but independent of, Smac/DIABLO.