The Arabidopsis arc1 (accumulation and replication of chloroplasts 1) mutant has pale seedlings and smaller, more numerous chloroplasts than the wild type. Previous work has suggested that arc1 affects the timing of chloroplast division but does not function directly in the division process. We isolated ARC1 by map-based cloning and discovered it encodes FtsHi1 (At4g23940), one of several FtsHi proteins in Arabidopsis. These poorly studied proteins resemble FtsH metalloproteases important for organelle biogenesis and protein quality control but are presumed to be proteolytically inactive. FtsHi1 bears a predicted chloroplast transit peptide and localizes to the chloroplast envelope membrane. Phenotypic studies showed that arc1 (hereafter ftsHi1-1), which bears a missense mutation, is a weak allele of FtsHi1 that disrupts thylakoid development and reduces de-etiolation efficiency in seedlings, suggesting that FtsHi1 is important for chloroplast biogenesis. Consistent with this finding, transgenic plants suppressed for accumulation of an FtsHi1 fusion protein were often variegated. A strong T-DNA insertion allele, ftsHi1-2, caused embryo-lethality, indicating that FtsHi1 is an essential gene product. A wild-type FtsHi1 transgene rescued both the chloroplast division and pale phenotypes of ftsHi1-1 and the embryo-lethal phenotype of ftsHi1-2. FtsHi1 overexpression produced a subtle increase in chloroplast size and decrease in chloroplast number in wild-type plants while suppression led to increased numbers of small chloroplasts, providing new evidence that FtsHi1 negatively influences chloroplast division. Taken together, our analyses reveal that FtsHi1 functions in an essential, envelope-associated process that may couple plastid development with division.