Proteins containing ubiquitin-binding domains (UBDs) interact with ubiquitinated targets and regulate diverse biological processes, including endocytosis, signal transduction, transcription and DNA repair. Many of the UBD-containing proteins are also themselves monoubiquitinated, but the functional role and the mechanisms that underlie this modification are less well understood. Here, we demonstrate that monoubiquitination of the endocytic proteins Sts1, Sts2, Eps15 and Hrs results in intramolecular interactions between ubiquitin and their UBDs, thereby preventing them from binding in trans to ubiquitinated targets. Permanent monoubiquitination of these proteins, mimicked by the fusion of ubiquitin to their carboxyl termini, impairs their ability to regulate trafficking of ubiquitinated receptors. Moreover, we mapped the in vivo monoubiquitination site in Sts2 and demonstrated that its mutation enhances the Sts2-mediated effects of epidermal-growth-factor-receptor downregulation. We propose that monoubiquitination of ubiquitin-binding proteins inhibits their capacity to bind to and control the functions of ubiquitinated targets in vivo. ?? 2006 Nature Publishing Group.