The proteasome degrades some proteins, such as transcription factors Cubitus interruptus (Ci) and NF-kappaB, to generate biologically active protein fragments. Here we have identified and characterized the signals in the substrate proteins that cause this processing. The minimum signal consists of a simple sequence preceding a tightly folded domain in the direction of proteasome movement. The strength of the processing signal depends primarily on the complexity of the simple sequence rather than on amino acid identity, the resistance of the folded domain to unraveling by the proteasome and the spacing between the simple sequence and folded domain. We show that two unrelated transcription factors, Ci and NF-kappaB, use this mechanism to undergo partial degradation by the proteasome in vivo. These findings suggest that the mechanism is conserved evolutionarily and that processing signals may be widespread in regulatory proteins.