Peptide hormones are crucial regulators of many aspects of human physiology. Mutations that alter these signaling peptides are associated with physiological imbalances that underlie diseases. However, the conformational maturation of peptide hormone precursors (prohormones) in the ER remains largely unexplored. Here, we report that conformational maturation of proAVP, the precursor for the antidiuretic hormone arginine-vasopressin, within the ER requires the ER-associated degradation (ERAD) activity of the Sel1L-Hrd1 protein complex. Serum hyperosmolality induces expression of both ERAD components and proAVP in AVP-producing neurons. Mice with global or AVP neuron–specific ablation of Se1L-Hrd1 ERAD progressively developed polyuria and polydipsia, characteristics of diabetes insipidus. Mechanistically, we found that ERAD deficiency causes marked ER retention and aggregation of a large proportion of all proAVP protein. Further, we show that proAVP is an endogenous substrate of Sel1L-Hrd1 ERAD. The inability to clear misfolded proAVP with highly reactive cysteine thiols in the absence of Sel1L-Hrd1 ERAD causes proAVP to accumulate and participate in inappropriate intermolecular disulfide–bonded aggregates, promoted by the enzymatic activity of protein disulfide isomerase (PDI). This study highlights a pathway linking ERAD to prohormone conformational maturation in neuroendocrine cells, expanding the role of ERAD in providing a conducive ER environment for nascent proteins to reach proper conformation.