Macroautophagy (autophagy) is a critical cellular stress response; however, the signal transduction pathways controlling autophagy induction in response to stress are poorly understood. Here we reveal a new mechanism of autophagy control whose deregulation disrupts mitochondrial integrity and energy homeostasis in vivo. Stress conditions including hypoxia and exercise induce reactive oxygen species (ROS) through upregulation of a protein complex involving REDD1, an mTORC1 inhibitor and the pro-oxidant protein TXNIP. Decreased ROS in cells and tissues lacking either REDD1 or TXNIP increases catalytic activity of the redox-sensitive ATG4B cysteine endopeptidase, leading to enhanced LC3B delipidation and failed autophagy. Conversely, REDD1/TXNIP complex expression is sufficient to induce ROS, suppress ATG4B activity and activate autophagy. In Redd1-/- mice, deregulated ATG4B activity and disabled autophagic flux cause accumulation of defective mitochondria, leading to impaired oxidative phosphorylation, muscle ATP depletion and poor exercise capacity. Thus, ROS regulation through REDD1/TXNIP is physiological rheostat controlling stress-induced autophagy.