The 46-kDa protein YDJ1 is one of several known yeast homologues of the Escherichia coli DnaJ protein. Like all J homologues, it shares homology with the highly conserved NH2-terminal "J-domain" of DnaJ. A component of the DnaK (Hsp70) chaperone machinery that mediates protein folding, DnaJ is necessary for survival at elevated temperatures. It stimulates ATP hydrolysis by DnaK and effects the release of DnaK-bound polypeptides. Previous genetic and biochemical studies indicate that the J-domain is necessary for these functions. Using peptides corresponding to J-domain sequence, we show that a peptide containing the highly conserved His-Pro-Asp sequence at positions 34-36 in the J-domain competes off YDJ1 stimulation of Hsp70 ATPase activity. Inhibitory concentrations of peptide do not prevent binding of folding substrates, therefore YDJ1 must interact with Hsp70 at a site distinct from that for substrate binding. This interaction is critical for Hsp70 activity, since a mutant YDJ1 protein harboring a H34Q change (ydj1Q34) stimulates neither Hsp70 ATPase nor substrate release. The importance of the proper function of this region of the protein is supported by the poor growth and temperature-sensitive phenotype of yeast expressing ydj1Q34.