Monoubiquitylation is a regulatory signal, like phosphorylation, that can alter the activity, location or structure of a protein. Monoubiquitin signals are likely to be recognized by ubiquitin-binding proteins that transmit the regulatory information conferred by monoubiquitylation. To identify monoubiquitin-binding proteins, we used a mutant ubiquitin that lacks the primary site of polyubiquitin chain formation as bait in a two-hybrid screen. The C-terminus of Vps9, a protein required in the yeast endocytic pathway, interacted specifically with monoubiquitin. The region required for monoubiquitin binding mapped to the Vps9 CUE domain, a sequence previously identified by database searches as similar to parts of the yeast Cue1 and mammalian Tollip proteins. We demonstrate that CUE domains bind directly to monoubiquitin and we have defined crucial interaction surfaces on both binding partners. The Vps9 CUE domain is required to promote monoubiquitylation of Vps9 by the Rsp5 hect domain ubiquitin ligase. Thus, we conclude that the CUE motif is an evolutionarily conserved monoubiquitin-binding domain that mediates intramolecular monoubiquitylation.