Atg12, a post-translational modifier, is activated and conjugated to Atg5 by a ubiquitin-like conjugation system, though it has no obvious sequence homology to ubiquitin. The Atg12-Atg5 conjugate is essential for autophagy, an intracellular bulk degradation process. Here, we show that the carboxyl-terminal region of Atg12 that is predicted to fold into a ubiquitin-like structure is necessary and sufficient for both conjugation and autophagy, which indicates that the domain essential for autophagy resides in the ubiquitin-fold region. We further show that two hydrophobic residues within the ubiquitin-fold region are important for autophagy: mutation at Y149 affects conjugate formation catalyzed by Atg10, an E2-like enzyme, while mutation at F154 has no effect on Atg12-Atg5 conjugate formation but its hydrophobic nature is essential for autophagy. In response to the F154 mutation, Atg8-PE conjugation, the other ubiquitin-like conjugation in autophagy, is severely reduced and autophagosome formation fails. Gel filtration analysis suggests that F154 plays a critical role in the assembly of a functional Atg12-Atg5.Atg16 complex that is requisite for autophagosome formation.