Monothiol glutaredoxins (Grxs) with a noncanonical CGFS active site are found in all kingdoms of life. They include members with a single domain and thioredoxin-Grx fusion proteins. In Saccharomyces cerevisiae, the multidomain Grx3 and Grx4 play an essential role in intracellular iron trafficking. This crucial task is mediated by an essential Fe/S cofactor. This study shows that this unique physiological role cannot be executed by single domain Grxs, because the thioredoxin domain is indispensable for function in vivo. Mutational analysis revealed that a CPxS active site motif is fully compatible with Fe/S cluster binding on Grx4, while a dithiol active site results in cofactor destabilization and a moderate impairment of in vivo function. These requirements for Fe/S cofactor stabilization on Grx4 are virtually the opposite of those previously reported for single domain Grxs. Grx4 functions as iron sensor for the iron-sensing transcription factor Aft1 in S. cerevisiae. We found that Aft1 binds to a conserved binding site at the C-terminus of Grx4. This interaction is essential for the regulation of Aft1. Collectively, our analysis demonstrates that the multidomain monothiol Grxs form a unique protein family distinct from that of the single domain Grxs.