To maintain quality control in cells, mechanisms distinguish among improperly folded peptides, mature and functional proteins, and proteins to be targeted for degradation. The molecular chaperones, including heat-shock protein Hsp90, have the ability to recognize misfolded proteins and assist in their conversion to a functional conformation. Disruption of Hsp90 heterocomplexes by the Hsp90 inhibitor geldanamycin leads to substrate degradation through the ubiquitin-proteasome pathway, implicating this system in protein triage decisions. We previously identified CHIP (carboxyl terminus of Hsc70-interacting protein) to be an interaction partner of Hsc70 (ref. 4). CHIP also interacts directly with a tetratricopeptide repeat acceptor site of Hsp90, incorporating into Hsp90 heterocomplexes and eliciting release of the regulatory cofactor p23. Here we show that CHIP abolishes the steroid-binding activity and transactivation potential of the glucocorticoid receptor, a well-characterized Hsp90 substrate, even though it has little effect on its synthesis. Instead, CHIP induces ubiquitylation of the glucocorticoid receptor and degradation through the proteasome. By remodelling Hsp90 heterocomplexes to favour substrate degradation, CHIP modulates protein triage decisions that regulate the balance between protein folding and degradation for chaperone substrates.