Mgs1, the budding yeast homolog of mammalian Werner helicase-interacting protein 1 (WRNIP1/WHIP), contributes to genome stability during undisturbed replication and in response to DNA damage. A ubiquitin-binding zinc finger (UBZ) domain directs human WRNIP1 to nuclear foci, but the functional significance of its presence and the relevant ubiquitylation targets that this domain recognizes have remained unknown. Here, we provide a mechanistic basis for the ubiquitin-binding properties of the protein. We show that in yeast an analogous domain exclusively mediates the damage-related activities of Mgs1. By means of preferential physical interactions with the ubiquitylated forms of the replicative sliding clamp, proliferating cell nuclear antigen (PCNA), the UBZ domain facilitates recruitment of Mgs1 to sites of replication stress. Mgs1 appears to interfere with the function of polymerase δ, consistent with our observation that Mgs1 inhibits the interaction between the polymerase and PCNA. Our identification of Mgs1 as a UBZ-dependent downstream effector of ubiquitylated PCNA suggests an explanation for the ambivalent role of the protein in damage processing.