The degradation of misfolded secretory proteins is ultimately mediated by the ubiquitin-proteasome system in the cytoplasm, therefore endoplasmic reticulum-associated degradation (ERAD) substrates must be dislocated across the ER membrane through a process driven by the AAA ATPase p97/VCP. Derlins recruit p97/VCP and have been proposed to be part of the dislocation machinery. Here we report that Derlins are inactive members of the rhomboid family of intramembrane proteases and bind p97/VCP through C-terminal SHP boxes. Human Derlin-1 harboring mutations within the rhomboid domain stabilized mutant α-1 antitrypsin (NHK) at the cytosolic face of the ER membrane without disrupting the p97/VCP interaction. We propose that substrate interaction and p97/VCP recruitment are separate functions that are essential for dislocation and can be assigned respectively to the rhomboid domain and the C terminus of Derlin-1. These data suggest that intramembrane proteolysis and protein dislocation share unexpected mechanistic features.