Identifying protein-protein and other proximal interactions is central to dissecting signaling and regulatory processes in cells. BioID is a proximity-dependent biotinylation method that uses an "abortive" biotin ligase to detect proximal interactions in cells in a highly reproducible manner. Recent advancements in proximity-dependent biotinylation tools have improved efficiency and timing of labeling, allowing for measurement of interactions on a cellular timescale. However, issues of size, stability, and background labeling of these constructs persist. Here we modified the structure of BioID2, derived from Aquifex aeolicus BirA, to create a smaller, highly active, biotin ligase that we named MicroID2. Truncation of the C terrminus of BioID2 and addition of mutations to alleviate blockage of biotin/ATP binding at the active site of BioID2 resulted in a smaller and highly active construct with lower background labeling. Several additional point mutations improved the function of our modified MicroID2 construct compared with BioID2 and other biotin ligases, including TurboID and miniTurbo. MicroID2 is the smallest biotin ligase reported so far (180 amino acids [AAs] for MicroID2 versus 257 AAs for miniTurbo and 338 AAs for TurboID), yet it demonstrates only slightly less labeling activity than TurboID and outperforms miniTurbo. MicroID2 also had lower background labeling than TurboID. For experiments where precise temporal control of labeling is essential, we in addition developed a MicroID2 mutant, termed lbMicroID2 (low background MicroID2), that has lower labeling efficiency but significantly reduced biotin scavenging compared with BioID2. Finally, we demonstrate utility of MicroID2 in mass spectrometry experiments by localizing MicroID2 constructs to subcellular organelles and measuring proximal interactions.