SummaryNaturally produced peptides (<100 amino acids) are important regulators of physiology, development, and metabolism. Recent studies have predicted that thousands of peptides may be translated from transcripts containing small open reading frames (smORFs). Here, we describe two previously uncharacterized peptides in Drosophila encoded by conserved smORFs, Sloth1 and Sloth2. These peptides are translated from the same bicistronic transcript and share sequence similarities, suggesting that they encode paralogs. We provide evidence that Sloth1/2 are highly expressed in neurons, localize to mitochondria, and form a complex. Double mutant analysis in animals and cell culture revealed that sloth1 and sloth2 are not functionally redundant, and their loss causes animal lethality, reduced neuronal function, impaired mitochondrial function, and neurodegeneration. These results suggest that phenotypic analysis of smORF genes in Drosophila can provide a wealth of information on the biological functions of this poorly characterized class of genes.