Coat protein II (COPII)-coated vesicles transport proteins and lipids from the endoplasmic reticulum to the Golgi. Crucial for the initiation of COPII coat assembly is Sec12, a guanine nucleotide exchange factor responsible for activating the small G protein Sar1. Once activated, Sar1/GTP binds to endoplasmic reticulum membranes and recruits COPII coat components (Sec23/24 and Sec13/31). Here, we report the 1.36 Å resolution crystal structure of the catalytically active, 38-kDa cytoplasmic portion of Saccharomyces cerevisiae Sec12. Sec12 adopts a β propeller fold. Conserved residues cluster around a loop we term the "K loop," which extends from the N-terminal propeller blade. Structure-guided site-directed mutagenesis, in conjunction with in vitro and in vivo functional studies, reveals that this region of Sec12 is catalytically essential, presumably because it makes direct contact with Sar1. Strikingly, the crystal structure also reveals that a single potassium ion stabilizes the K loop; bound potassium is, moreover, essential for optimum guanine nucleotide exchange activity in vitro. Thus, our results reveal a novel role for a potassium-stabilized loop in catalyzing guanine nucleotide exchange.