Envelope proteins of hepadnaviruses undergo a unique folding mechanism which results in the posttranslational translocation of 50% of the large envelope protein (L) chains across the endoplasmic reticulum. This mechanism is essential for the eventual positioning of the receptor-binding domain on the surface of the virus particle and in duck hepatitis B virus (DHBV) is dependent on the small (S) envelope protein as part of the assembly process. In this study, we report the identification of a third envelope protein, St, derived from the S protein and carrying functions previously attributed to S. Antibody mapping and mutagenesis studies indicated St to be C terminally truncated, spanning the N-terminal transmembrane domain (TM1) plus the adjacent cysteine loop. We have previously shown that the mutation of two conserved polar residues in TM1 of S (SAA) eliminates L translocation and assembly. A plasmid expressing a functional equivalent of St was able to rescue assembly, demonstrating that this assembly defect is due to mutations of the corresponding residues in St and not in S per se. Immunofluorescence analysis showed that St directly affects L protein cellular localization. These results indicate that St acts as a viral chaperone for L folding, remaining associated with the DHBV envelope upon secretion. The presence of St at a molar ratio of half that of L suggests that it is St which regulates L translocation to 50%.