Kaposi's sarcoma-associated herpesvirus encodes two transmembrane proteins (modulator of immune recognition [MIR]1 and MIR2) that downregulate cell surface molecules (MHC-I, B7.2, and ICAM-1) involved in the immune recognition of infected cells. This downregulation results from enhanced endocytosis and subsequent endolysosomal degradation of the target proteins. Here, we show that expression of MIR1 and MIR2 leads to ubiquitination of the cytosolic tail of their target proteins and that ubiquitination is essential for their removal from the cell surface. MIR1 and MIR2 both contain cytosolic zinc fingers of the PHD subfamily, and these structures are required for this activity. In vitro, addition of a MIR2-glutathione S-transferase (GST) fusion protein to purified E1 and E2 enzymes leads to transfer of ubiquitin (Ub) to GST-containing targets in an ATP- and E2-dependent fashion; this reaction is abolished by mutation of the Zn-coordinating residues of the PHD domain. Thus, MIR2 defines a novel class of membrane-bound E3 Ub ligases that modulates the trafficking of host cell membrane proteins.