Ubiquitination is catalyzed by a cascade of enzymes consisting of E1, E2, and E3. We report here the identification of an E1-like protein, termed E1-L2, that activates both ubiquitin and another ubiquitin-like protein, FAT10. Interestingly, E1-L2 can transfer ubiquitin to Ubc5 and Ubc13, but not Ubc3 and E2-25K, suggesting that E1-L2 may be specialized in a subset of ubiquitination reactions. E1-L2 forms a thioester with FAT10 in vitro, and this reaction requires the active-site cysteine of E1-L2 and the C-terminal diglycine motif of FAT10. Furthermore, endogenous FAT10 forms a thioester with E1-L2 in cells stimulated with tumor necrosis factor-alpha (TNFalpha) and interferon-gamma (IFNgamma), which induce FAT10 expression. Silencing of E1-L2 expression by RNAi blocks the formation of FAT10 conjugates in cells. Deletion of E1-L2 in mice caused embryonic lethality, suggesting that E1-L2 plays an important role in embryogenesis.