The multifunctional AAA-ATPase p97 is one of the most abundant and conserved proteins in eukaryotic cells. The p97/Npl4/Ufd1 complex dislocates proteins that fail the protein quality control in the endoplasmic reticulum to the cytosol where they are subject to degradation by the ubiquitin/proteasome system. Substrate dislocation depends on the unfoldase activity of p97. Interestingly, p97 is also involved in the degradation of specific soluble proteasome substrates but the exact mode of action of p97 in this process is unclear. Here, we show that both the central pore and ATPase activity of p97 are necessary for the degradation of cytosolic ubiquitin-fusion substrates. Addition of a flexible extended C-terminal peptide to the substrate relieves the requirement for p97. Deletion mapping reveals a conserved length dependency of 20 residues for the peptide, which allows p97-independent degradation to occur. Our results suggest that initiation of unfolding may be more complex than previously anticipated and that the 19S regulatory complex of the proteasome can require preprocessing of highly folded, ubiquitylated substrates by the p97(Ufd1/Npl4) complex. Our data provide an explanation for the observation that p97 is only essential for a subpopulation of soluble substrates and predict that a common characteristic of soluble p97-dependent substrates is the lack of an initiation site to facilitate unfolding by the 26S proteasome.