The effects of the human DnaJ homolog, Hsp40, on the ATPase and chaperone functions of the constitutively expressed Hsp70 homolog, Hsc70, were analyzed. Hsp40 stimulates the hydrolysis of ATP by Hsc70, causing a approximately 7-fold increase in its steady-state ATPase activity. In contrast to the prokaryotic Hsp70 system, ATP-hydrolysis and not the release of bound ADP is the rate-limiting step in the overall ATPase cycle of mammalian Hsc70. The ability to activate the Hsc70 ATPase is partially preserved in a deletion mutant containing the J-domain and the G/F region of Hsp40 but not in a deletion mutant that contains the J-domain alone. As a result of its ATPase stimulating activity, addition of Hsp40 allows Hsc70 to bind peptide in the presence of ATP, whereas in the absence of Hsp40, peptide is efficiently released upon ATP binding to Hsc70. The functional cooperation of Hsp40 with Hsc70 is essential to ensure the ATP hydrolysis-dependent binding of aggregation-sensitive denatured polypeptides, such as thermally denatured firefly luciferase and chemically denatured rhodanese. Binding of these proteins results in the formation of ternary complexes of Hsc70, Hsp40, and substrates. Hsc70 and Hsp40 cooperate with further factors in protein renaturation, as demonstrated by the finding that luciferase, thermally denatured in the presence of Hsc70, Hsp40, and ATP, refolds upon addition of rabbit reticulocyte cytosol. Our results indicate that Hsp40 has a critical regulatory function in the Hsc70 ATPase cycle that is required for the efficient loading of peptide substrate onto Hsc70.