PERK and IRE1 are type-I transmembrane protein kinases that reside in the endoplasmic reticulum (ER) and transmit stress signals in response to perturbation of protein folding. Here we show that the lumenal domains of these two proteins are functionally interchangeable in mediating an ER stress response and that, in unstressed cells, both lumenal domains form a stable complex with the ER chaperone BiP. Perturbation of protein folding promotes reversible dissociation of BiP from the lumenal domains of PERK and IRE1. Loss of BiP correlates with the formation of high-molecular-mass complexes of activated PERK or IRE1, and overexpression of BiP attenuates their activation. These findings are consistent with a model in which BiP represses signalling through PERK and IRE1 and protein misfolding relieves this repression by effecting the release of BiP from the PERK and IRE1 lumenal domains.