We consider type IIB string theory on a seven dimensional orbifold with holonomy in G2. The motivation is to use D1-branes as probes of the geometry. The low energy theory on the D1-brane is a sigma-model with two real supercharges (N = (1,1) in two dimensional language). We study in detail the closed and open string sectors and propose a coupling of the twisted fields to the brane that modifies the vacuum moduli space so that the singularity at the origin is removed. Instead of coming from D-terms, which are not present here, the modification comes from a ``twisted mass term for the seven scalar multiplets on the brane. The proposed mechanism involves a generalization of the moment map.
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