Ubiquitin-proteasome system and autophagy are the two major mechanisms for protein degradation in eukaryotic cells. LC3, a ubiquitin-like protein, plays an essential role in autophagy through its ability to be conjugated to phosphatidylethanolamine. In this study, we discovered a novel LC3-processing activity, and biochemically purified the 20S proteasome as the responsible enzyme. Processing of LC3 by the 20S proteasome is ATP- and ubiquitin-independent, and requires both the N-terminal helices and the ubiquitin fold of LC3; addition of the N-terminal helices of LC3 to the N terminus of ubiquitin renders ubiquitin susceptible to 20S proteasomal activity. Further, the 20S proteasome processes LC3 in a stepwise manner, it first cleaves LC3 within its ubiquitin fold and thus disrupts the conjugation function of LC3; subsequently and especially at high concentrations of the proteasome, LC3 is completely degraded. Intriguingly, proteolysis of LC3 by the 20S proteasome can be inhibited by p62, an LC3-binding protein that mediates autophagic degradation of polyubiquitin aggregates in cells. Therefore, our study implicates a potential mechanism underlying interplay between the proteasomal and autophagic pathways. This study also provides biochemical evidence suggesting relevance of the controversial ubiquitin-independent proteolytic activity of the 20S proteasome.