The interactions of distinct cofactor complexes with transcription factors are decisive determinants for the regulation of gene expression. Depending on the bound cofactor, transcription factors can have either repressing or transactivating activities. To allow a switch between these different states, regulated cofactor exchange has been proposed; however, little is known about the molecular mechanisms that are involved in this process. LIM homeodomain (LIM-HD) transcription factors associate with RLIM (RING finger LIM domain-binding protein) and with CLIM (cofactor of LIM-HD proteins; also known as NLI, Ldb and Chip) cofactors. The co-repressor RLIM inhibits the function of LIM-HD transcription factors, whereas interaction with CLIM proteins is important for the exertion of the biological activity conferred by LIM-HD transcription-factors. Here we identify RLIM as a ubiquitin protein ligase that is able to target CLIM cofactors for degradation through the 26S proteasome pathway. Furthermore, we demonstrate a ubiquitination-dependent association of RLIM with LIM-HD proteins in the presence of CLIM cofactors. Our data provide a mechanistic basis for cofactor exchange on DNA-bound transcription factors, and probably represent a general mechanism of transcriptional regulation.