Despite their very close structural similarity, CxxC/S-type (class I) glutaredoxins (Grxs) act as oxidoreductases, while CGFS-type (class II) Grxs act as FeS cluster transferases. Here we show that the key determinant of Grx function is a distinct loop structure adjacent to the active site. Engineering of a CxxC/S-type Grx with a CGFS-type loop switched its function from oxidoreductase to FeS transferase. Engineering of a CGFS-type Grx with a CxxC/S-type loop abolished FeS transferase activity and activated the oxidative half reaction of the oxidoreductase. The reductive half-reaction, requiring the interaction with a second GSH molecule, was enabled by switching additional residues in the active site. We explain how subtle structural differences, mostly depending on the structure of one particular loop, act in concert to determine Grx function.