Paternally expressed gene 10 (PEG10) is a mammalian gene that is essential for embryonic development in mice. The gene contains two overlapping open reading frames (ORF1 and ORF2) and is derived from a retroelement that acquired a cellular function. It is not known if both reading frames are required for PEG10 function. Synthesis of ORF2 would be possible only if programmed -1 frameshifting occurred during ORF1 translation. In this study the frameshifting activity of PEG10 was analyzed in vivo, and a potential role for ORF2 was investigated. Phylogenetic analysis demonstrated that PEG10 is highly conserved in therian mammals, with all species retaining the elements necessary for frameshifting as well as functional motifs in each ORF. The frameshift site of PEG10 was highly active in cultured cells and produced the ORF1-2 protein. In mice, endogenous ORF1 and an ORF1-2 frameshift protein were detected in the developing placenta and amniotic membrane from 9.5 days post-coitus through to term with a very high frameshift efficiency (>60%). Mutagenesis of the active site motif of a putative protease within ORF2 showed that this enzyme is active and participates in post-translational processing of PEG10 ORF1-2. Both PEG10 proteins were also detected in first trimester human placenta. By contrast, neither protein expression nor frameshifting was detected in adult mouse tissues. These studies imply that the ORF1-2 protein, synthesized utilizing the most efficient -1 frameshift mechanism yet documented in vivo, will have an essential function that is intrinsic to the importance of PEG10 in mammals.