The sorting of G protein-coupled receptors (GPCRs) to lysosomes is critical for proper signaling and cellular responses. We previously showed that the adaptor protein ALIX regulates lysosomal degradation of protease-activated receptor-1 (PAR1), a GPCR for thrombin, independent of ubiquitin-binding ESCRTs and receptor ubiquitination. However, the mechanisms that regulate ALIX function during PAR1 lysosomal sorting are not known. Here we show that the mammalian α-arrestin arrestin domain-containing protein-3 (ARRDC3) regulates ALIX function in GPCR sorting via ubiquitination. ARRDC3 colocalizes with ALIX and is required for PAR1 sorting at late endosomes and degradation. Depletion of ARRDC3 by small interfering RNA disrupts ALIX interaction with activated PAR1 and the CHMP4B ESCRT-III subunit, suggesting that ARRDC3 regulates ALIX activity. We found that ARRDC3 is required for ALIX ubiquitination induced by activation of PAR1. A screen of nine mammalian NEDD4-family E3 ubiquitin ligases revealed a critical role for WWP2. WWP2 interacts with ARRDC3 and not ALIX. Depletion of WWP2 inhibited ALIX ubiquitination and blocked ALIX interaction with activated PAR1 and CHMP4B. These findings demonstrate a new role for the α-arrestin ARRDC3 and the E3 ubiquitin ligase WWP2 in regulation of ALIX ubiquitination and lysosomal sorting of GPCRs.