Fanconi anemia (FA) pathway members, FANCD2 and FANCI, contribute to the repair of replication-stalling DNA lesions. FA pathway activation relies on phosphorylation of FANCI by the ataxia telangiectasia and Rad3-related (ATR) kinase, followed by monoubiquitination of FANCD2 and FANCI by the FA core complex. FANCD2 and FANCI are thought to form a functional heterodimer during DNA repair, but it is unclear how dimer formation is regulated or what the functions of the FANCD2-FANCI complex versus the monomeric proteins are. We show that the FANCD2-FANCI complex forms independently of ATR and FA core complex, and represents the inactive form of both proteins. DNA damage-induced FA pathway activation triggers dissociation of FANCD2 from FANCI. Dissociation coincides with FANCD2 monoubiquitination, which significantly precedes monoubiquitination of FANCI; moreover, monoubiquitination responses of FANCD2 and FANCI exhibit distinct DNA substrate specificities. A phosphodead FANCI mutant fails to dissociate from FANCD2, whereas phosphomimetic FANCI cannot interact with FANCD2, indicating that FANCI phosphorylation is the molecular trigger for FANCD2-FANCI dissociation. Following dissociation, FANCD2 binds replicating chromatin prior to-and independently of-FANCI. Moreover, the concentration of chromatin-bound FANCD2 exceeds that of FANCI throughout replication. Our results suggest that FANCD2 and FANCI function separately at consecutive steps during DNA repair in S-phase.