  We derive the five-dimensional effective action of strongly coupled heterotic
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 crucial
ingredient for a consistent truncation is a non-zero mode of the antisymmetric
tensor field strength which arises due to magnetic sources on the orbifold
planes. The correct effective theory is a gauged version of five-dimensional
N=1 supergravity coupled to Abelian vector multiplets, the universal
hypermultiplet and four-dimensional boundary theories with gauge and gauge
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
combination of the Abelian vector fields. In addition, the theory has potential
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. We
show that the five-dimensional theory together with this solution provides the
correct starting point for particle phenomenology as well as early universe
cosmology. As an application, we compute the four-dimensional N=1 supergravity
theory for the complete (1,1) sector to leading nontrivial order by a reduction
on the domain wall background. We find a correction to the matter field Kahler
potential and threshold corrections to the gauge kinetic functions.
