ALDH1L1 is a folate-metabolizing enzyme abundant in liver and several other tissues. In human cancers and cell lines derived from malignant tumors, the ALDH1L1 gene is commonly silenced through the promoter methylation. It was suggested that ALDH1L1 limits proliferation capacity of the cell and thus functions as putative tumor suppressor. In contrast to cancer cells, mouse cell lines NIH3T3 and AML12 do express the ALDH1L1 protein. In the present study, we show that the levels of ALDH1L1 in these cell lines fluctuate throughout the cell cycle. During S-phase, ALDH1L1 is markedly down regulated at the protein level. As the cell cultures become confluent and cells experience increased contact inhibition, ALDH1L1 accumulates in the cells. In agreement with this finding, NIH3T3 cells arrested in G1/S-phase by a thymidine block completely lose the ALDH1L1 protein. Treatment with the proteasome inhibitor MG-132 prevents such loss in proliferating NIH3T3 cells, suggesting the proteasomal degradation of the ALDH1L1 protein. The co-localization of ALDH1L1 with proteasomes, demonstrated by confocal microscopy, supports this mechanism. We further show that ALDH1L1 interacts with the chaperone-dependent E3 ligase CHIP, which plays a key role in the ALDH1L1 ubiquitination and degradation. In NIH3T3 cells, silencing of CHIP by siRNA halts, while transient expression of CHIP promotes, the ALDH1L1 loss. The downregulation of ALDH1L1 is associated with the accumulation of the ALDH1L1 substrate 10-formyltetrahydrofolate, which is required for de novo purine biosynthesis, a key pathway activated in S-phase. Overall, our data indicate that CHIP-mediated proteasomal degradation of ALDH1L1 facilitates cellular proliferation.