Mitochondrial dynamics and mtDNA homeostasis are essential for numerous biological processes and have recently been linked through distinct subdomains termed small MTFP1-enriched mitochondria (SMEM). However, the molecular mechanisms governing this connection remain unclear. Here, we identified MISO (Mitochondrial Inner membrane Subdomain Organizer), a novel protein that regulates mitochondrial dynamics and drives SMEM formation in response to inner mitochondrial membrane (IMM) stresses. We demonstrate that MISO regulates mitochondrial dynamics in both Drosophila stem cells in vivo and mammalian cells in vitro. Mechanistic study showed that MISO promotes mitochondrial fission while inhibiting fusion. Notably, MISO induces SMEM formation and facilitates their peripheral fission, which regulates the lysosomal degradation of mtDNA. Meanwhile, MISO knock-out completely abolishes SMEM generation, indicating that MISO is both necessary and sufficient for SMEM biogenesis. Furthermore, SMEM functionality requires MISO-dependent recruitment of MTFP1 and subsequent engagement of downstream effectors, including the FIS1-DRP1 fission machinery. IMM stresses, including damages in mtDNA, OXPHOS complexes, and cristae, stabilize the normally short-lived MISO protein, thereby triggering SMEM assembly. Furthermore, MISO-orchestrated SMEM formation depends on its C-terminal domain, likely mediated by oligomerization. Together, our work elucidates a molecular mechanism by which IMM stresses affect mitochondrial dynamics and mtDNA homeostasis.