The mechanisms by which Hsp40 functions as a molecular chaperone to recognize and bind non-native polypeptides is not understood. We have identified a peptide substrate for Ydj1, a member of the type I Hsp40 from yeast. The structure of the Ydj1 peptide binding fragment and its peptide substrate complex was determined to 2.7 A resolution. The complex structure reveals that Ydj1 peptide binding fragment forms an L-shaped molecule constituted by three domains. The domain I exhibits a similar protein folds as domain III while the domain II contains two Zinc finger motifs. The peptide substrate binds Ydj1 by forming an extra beta strand with domain I of Ydj1. The Leucine residue in the middle of the peptide substrate GWLYEIS inserts its side chain into a hydrophobic pocket formed on the molecular surface of Ydj1 domain I. The Zinc finger motifs located in the Ydj1 domain II are not in the vicinity of peptide substrate binding site.