Nearly one-third of proteins are initially targeted to the endoplasmic reticulum (ER) membrane, where they are correctly folded and then delivered to their final cellular destinations. To prevent the accumulation of misfolded membrane proteins, ER-associated degradation (ERAD) moves these clients from the ER membrane to the cytosol, a process known as retrotranslocation. Our recent work in Saccharomyces cerevisiae reveals a derlin rhomboid pseudoprotease, Dfm1, is involved in the retrotranslocation of ubiquitinated ERAD membrane substrates. In this study, we identify conserved residues of Dfm1 that are critical for retrotranslocation. We find several retrotranslocation-deficient Loop 1 mutants that display impaired binding to membrane substrates. Furthermore, Dfm1 possesses lipid thinning function to facilitate in the removal of ER membrane substrates, and this feature is conserved in its human homolog, Derlin-1, further implicating that derlin-mediated retrotranslocation is a well-conserved process.