The reticulon-3 (RTN3)-driven targeting complex promotes clearance of misfolded prohormones from the endoplasmic reticulum (ER) for lysosomal destruction by ER-phagy. Because RTN3 resides in the cytosolic leaflet of the ER bilayer, the mechanism of selecting misfolded prohormones as ER-phagy cargo on the luminal side of the ER membrane remains unknown. Here we identify the ER transmembrane protein PGRMC1 as an RTN3-binding partner. Via its luminal domain, PGRMC1 captures misfolded prohormones, targeting them for RTN3-dependent ER-phagy. PGRMC1 selects cargos that are smaller than the large size of other reported ER-phagy substrates. Cargos for PGRMC1 include mutant proinsulins that block secretion of wildtype proinsulin through dominant-negative interactions within the ER, causing insulin-deficiency. Chemical perturbation of PGRMC1 partially restores WT insulin storage by preventing ER-phagic degradation of WT and mutant proinsulin. Thus, PGRMC1 acts as a size-selective cargo receptor during RTN3-dependent ER-phagy, and is a potential therapeutic target for diabetes.