K3/MIR1 and K5/MIR2 of Kaposi's sarcoma-associated herpesvirus (KSHV) are viral members of the membrane-associated RING-CH (MARCH) ubiquitin ligase family and contribute to viral immune evasion by directing the conjugation of ubiquitin to immunostimulatory transmembrane proteins. In a quantitative proteomic screen for novel host cell proteins downregulated by viral immunomodulators, we previously observed that K5, as well as the human immunodeficiency virus type 1 (HIV-1) immunomodulator VPU, reduced steady-state levels of bone marrow stromal cell antigen 2 (BST2; also called CD317 or tetherin), suggesting that BST2 might be a novel substrate of K5 and VPU. Recent work revealed that in the absence of VPU, HIV-1 virions are tethered to the plasma membrane in BST2-expressing HeLa cells. By targeting BST2, K5 might thus similarly overcome an innate antiviral host defense mechanism. Here we establish that despite its type II transmembrane topology and carboxy-terminal glycosylphosphatidylinositol (GPI) anchor, BST2 represents a bona fide target of K5 that is downregulated during primary infection by and reactivation of KSHV. Upon exit of the protein from the endoplasmic reticulum, lysines in the short amino-terminal domain of BST2 are ubiquitinated by K5, resulting in rapid degradation of BST2. Ubiquitination of BST2 is required for degradation, since BST2 lacking cytosolic lysines was K5 resistant and ubiquitin depletion by proteasome inhibitors restored BST2 surface expression. Thus, BST2 represents the first type II transmembrane protein targeted by K5 and the first example of a protein that is both ubiquitinated and GPI linked. We further demonstrate that KSHV release is decreased in the absence of K5 in a BST2-dependent manner, suggesting that K5 contributes to the evasion of intracellular antiviral defense programs.