Thermal degradation of nafcillin sodium (NS) gave rise to an unknown impurity. This unknown thermal degradation impurity (TDI) was evaluated using a reverse-phase high performance liquid chromatography, where it was eluted at 1.31 relative retention time to NS peak. TDI was isolated using preparative HPLC from degradation mixture and fully characterized using the various spectroscopic techniques like high resolution MS, multidimensional NMR and FTIR. Based on the available spectroscopic data, the probable structure for the impurity is proposed and is named as (2R,4S)-2-((R)-carboxy(2-ethoxy-1-naphthamido)methyl)-3-((2-ethoxy-1naphthoyl)glycyl)-5,5-dimethylthiazolidine-4-carboxylic acid. The proposed structure is further supported by the density functional theory calculations. In addition, a two-step mechanism of the degradation is proposed. To the best of our knowledge, it is a novel impurity and not reported elsewhere.