Thioredoxin reductase (TR) and thioredoxin constitute a major cellular redox system present in all organisms. In contrast to a single form of thioredoxin, there are two TR types: One (bacterial type or small TR) is present in bacteria, archaea, plants, and most unicellular eukaryotes, whereas the second (animal or large TR) is only found in animals and typically contains a carboxy-terminal penultimate selenocysteine encoded by TGA. Surprisingly, we detected sequences of large TRs in various unicellular eukaryotes. Moreover, green algae Chlamydomonas reinhardtii had both small and large TRs, with the latter being a selenoprotein, but no examples of horizontal gene transfer from animals to the green algae could be detected. In addition, phylogenetic analyses revealed that large TRs formed a subgroup of lower eukaryotic glutathione reductases (GRs). The data suggest that the large TR evolved in a lower eukaryote capable of selenocysteine insertion rather than in an animal. The enzyme appeared to evolve by a carboxy-terminal extension of GR such that the resulting carboxy-terminal glutathionelike peptide became an intramolecular substrate for GR and a reductant for thioredoxin. Subsequently, small TRs were lost in an organism that gave rise to animals, large TRs were lost in plants and fungi, and selenocysteine/cysteine replacements took place in some large TRs. Our data implicate carboxy-terminal extension of proteins as a general mechanism of evolution of new protein function.