Many studies have demonstrated a role for ubiquitin (Ub) in the down-regulation of cell surface proteins. In yeast, down-regulation is marked by the internalization of proteins, followed by their delivery to the lumen of the vacuole where both the cytosolic and lumenal domains are degraded. It is generally believed that the regulatory step of this process is internalization from the plasma membrane and that protein delivery to the lysosome or vacuole is by default. By separating the process of internalization from degradation, we demonstrate that incorporation of proteins into intralumenal vesicles represents a distinct sorting step along the endocytic pathway that is controlled by recognition of ubiquitin. We show that attachment of a single ubiquitin can serve as a specific sorting signal for the degradative pathway by redirecting recycling Golgi proteins and resident vacuolar proteins into intralumenal vesicles of the yeast vacuole. This pathway is independent of PtdIns(3,5) P2 and does not rely on the specific composition of transmembrane domain segments. These data provide a physiological basis for how ubiquitination of cell surface proteins guides their degradation and removal from the recycling pathway.