During S phase, chromatid cohesion is established only between nascent sisters and with faithful pairing along their entire region, but how this is ensured is unknown. Here we report that sister chromatid cohesion is formed and maintained by a unique mechanism. In fission yeast, Eso1p, functioning in close coupling to DNA replication, establishes sister chromatid cohesion whereas the newly identified Cohesin-associated protein Pds5p hinders the establishment of cohesion until counteracted by Eso1p, yet stabilizes cohesion once it is established. Eso1p interacts physically with Pds5p via its Ctf7p/Eco1p-homologous domain.