Luminal ER proteins carry a signal at their C terminus that prevents their secretion; in S. cerevisiae this signal is the tetrapeptide HDEL. Indirect evidence suggests that HDEL is recognized by a receptor that retrieves ER proteins from the secretory pathway and returns them to the ER, and a candidate for this receptor is the product of the ERD2 gene (see accompanying paper). We show here that presumptive ER proteins from the budding yeast K. lactis can terminate either with HDEL or, in the case of BiP, with DDEL. S. cerevisiae does not efficiently recognize DDEL as a retention signal, but exchange of its ERD2 gene for the corresponding gene from K. lactis allows equal recognition of DDEL and HDEL. Thus the specificity of the retention system is determined by the ERD2 gene. We conclude that ERD2 encodes the receptor that sorts luminal ER proteins.