The α-arrestin ARRDC3 is a recently discovered tumor suppressor in invasive breast cancer that functions as a multifaceted adaptor protein to control protein trafficking and cellular signaling. However, the molecular mechanisms that control ARRDC3 function are unknown. Other arrestins are known to be regulated by posttranslational modifications, suggesting that ARRDC3 may be subject to similar regulatory mechanisms. Here we report that ubiquitination is a key regulator of ARRDC3 function and is mediated primarily by two proline-rich PPXY motifs in the ARRDC3 C-tail domain. Ubiquitination and the PPXY motifs are essential for ARRDC3 function in regulating GPCR trafficking and signaling. Additionally, ubiquitination and the PPXY motifs mediate ARRDC3 protein degradation, dictate ARRDC3 subcellular localization, and are required for interaction with the NEDD4-family E3 ubiquitin ligase WWP2. These studies demonstrate a role for ubiquitination in regulating ARRDC3 function and reveal a mechanism by which ARRDC3 divergent functions are controlled.