Cells from patients with Fanconi anemia (FA), an inherited disorder that includes bone marrow failure and cancer predisposition, have increased sensitivity to oxidative stress through an unknown mechanism. We demonstrate that the FA group G (FANCG) protein is found in mitochondria. Wild-type but not G546R mutant FANCG physically interacts with the mitochondrial peroxidase peroxiredoxin-3 (PRDX3). PRDX3 is deregulated in FA cells, including cleavage by a calpainlike cysteine protease and mislocalization. FA-G cells demonstrate distorted mitochondrial structures, and mitochondrial extracts have a sevenfold decrease in thioredoxin-dependent peroxidase activity. Transient overexpression of PRDX3 suppresses the sensitivity of FA-G cells to H2O2, and decreased PRDX3 expression increases sensitivity to mitomycin C. Cells from the FA-A and -C subtypes also have PRDX3 cleavage and decreased peroxidase activity. This study demonstrates a role for the FA proteins in mitochondria witsh sensitivity to oxidative stress resulting from diminished peroxidase activity. These defects may lead to apoptosis and the accumulation of oxidative DNA damage in bone marrow precursors.