The endoplasmic reticulum (ER) localized Hsp70 chaperone BiP affects protein folding homeostasis and the response to ER stress. Reversible inactivating covalent modification of BiP is believed to contribute to the balance between chaperones and unfolded ER proteins, but the nature of this modification has so far been hinted at indirectly. We report that deletion of FICD, a gene encoding an ER-localized AMPylating enzyme, abolished detectable modification of endogenous BiP enhancing ER buffering of unfolded protein stress in mammalian cells, whilst deregulated FICD activity had the opposite effect. In vitro, FICD AMPylated BiP to completion on a single residue, Thr(518). AMPylation increased, in a strictly FICD-dependent manner, as the flux of proteins entering the ER was attenuated in vivo. In vitro, Thr(518) AMPylation enhanced peptide dissociation from BiP 6-fold and abolished stimulation of ATP hydrolysis by J-domain cofactor. These findings expose the molecular basis for covalent inactivation of BiP.