Ubiquitin-related modifier 1 (Urm1) is a ubiquitin-like molecule (UBL) with the dual capacity to act both as a sulphur carrier and posttranslational protein modifier. Here we characterize the Drosophila melanogaster homologues of Urm1 (CG33276) and its E1 activating enzyme Uba4 (CG13090), and show that they function together to induce protein urmylation in vivo. Urm1 conjugation to target proteins in general, and to the evolutionary conserved substrate Peroxiredoxin 5 (Prx5) specifically, is dependent on Uba4. A complete loss of Urm1 is lethal in flies, although a small number of adult zygotic Urm1 (n123) mutant escapers can be recovered. These escapers display a decreased general fitness and shortened lifespan, but in contrast to their S. cerevisiae counterparts, they are resistant to oxidative stress. Providing a molecular explanation, we demonstrate that cytoprotective JNK signaling is increased in Urm1 deficient animals. In agreement, molecular and genetic evidence suggest that elevated activity of the JNK downstream target genes Jafrac1 and gstD1 strongly contributes to the tolerance against oxidative stress displayed by Urm1 (n123) null mutants. In conclusion, Urm1 is a UBL that is involved in the regulation of JNK signaling and the response against oxidative stress in the fruit fly.