Defects in protein homeostasis can induce proteotoxic stress, affecting cellular fitness and, consequently, overall tissue health. In various growing tissues, cell competition based mechanisms facilitate detection and elimination of these compromised, often referred to as 'loser', cells by the healthier neighbors. The precise connection between proteotoxic stress and competitive cell survival remains largely elusive. Here, we reveal the function of an endoplasmic reticulum (ER) and Golgi localized protein Rer1 in the regulation of protein homeostasis in the developing Drosophila wing epithelium. Our results show that loss of Rer1 leads to proteotoxic stress and PERK-mediated phosphorylation of eukaryotic initiation factor 2α. Clonal analysis showed that rer1 mutant cells are identified as losers and eliminated through cell competition. Interestingly, we find that Rer1 levels are upregulated upon Myc-overexpression that causes overgrowth, albeit under high proteotoxic stress. Our results suggest that increased levels of Rer1 provide cytoprotection to Myc-overexpressing cells by alleviating the proteotoxic stress and thereby supporting Myc-driven overgrowth. In summary, these observations demonstrate that Rer1 acts as a novel regulator of proteostasis in Drosophila and reveal its role in competitive cell survival.