We derive the five-dimensional effective action of strongly coupled heterot
ic string theory for the complete (1, 1) sector of the theory by performing
a reduction, on a Calabi-Yau three-fold, of M-theory on S-1/Z(2). A crucia
l ingredient for a consistent truncation is a non-zero-mode of the antisymm
etric tensor field strength which arises due to magnetic sources on the orb
ifold planes. The correct effective theory is a gauged version of five-dime
nsional N = 1 supergravity coupled to Abelian vector multiplets, the univer
sal hypermultiplet and four-dimensional boundary theories with gauge and ga
uge matter fields. The gauging is such that the dual of the four-form field
strength in the universal multiplet is charged under a particular linear c
ombination of the Abelian vector fields. In addition, the theory has potent
ial terms for the moduli in the bulk as well as on the boundary. Because of
these potential terms, the supersymmetric ground state of the theory is a
multi-charged BPS three-brane domain wall, which we construct in general. W
e show that the five-dimensional theory together with this solution provide
s the correct starting point for particle phenomenology as well as early un
iverse cosmology. As an application, we compute the four-dimensional N = 1
supergravity theory for the complete (1, 1) sector to leading non-trivial o
rder by a reduction on the domain wall background. We find a correction to
the matter field Kahler potential and threshold corrections to the gauge ki
netic functions. (C) 1999 Published by Elsevier Science B.V. All rights res
erved.