Intracellular vesicle fusion is mediated by SNAREs and Sec1/Munc18 (SM) proteins. Despite intensive efforts, the SNARE-SM mediated vesicle fusion reaction has not been faithfully reconstituted in biochemical assays. Here, we present an unexpected discovery that macromolecular crowding is required for reconstituting the vesicle fusion reaction in vitro. Macromolecular crowding is known to profoundly influence the kinetic and thermodynamic behaviors of macromolecules, but its role in membrane transport processes such as vesicle fusion remains unexplored. We introduced macromolecular crowding agents into reconstituted fusion reactions to mimic the crowded cellular environment. In this crowded assay, SNAREs and SM proteins acted in concert to drive efficient membrane fusion. In uncrowded assays, by contrast, SM proteins failed to associate with the SNAREs and the fusion rate decreased more than 30-fold, close to undetectable levels. The activities of SM proteins were strictly specific to their cognate SNARE isoforms and sensitive to biologically relevant mutations, further supporting that the crowded fusion assay accurately recapitulates the vesicle fusion reaction. Using this crowded fusion assay, we also showed that the SNARE-SM mediated fusion reaction can be modulated by two additional factors: NSF and alpha-SNAP. These findings suggest that the vesicle fusion machinery likely has been evolutionarily selected to function optimally in the crowded milieu of the cell. Accordingly, macromolecular crowding should constitute an integral element of any reconstituted fusion assay.