Human herpesvirus 8 (HHV8) downregulates major histocompatibility complex (MHC) class I complexes from the plasma membrane via two of its genes, K3 and K5. The N termini of K3 and K5 contain a plant homeodomain (PHD) predicted to be structurally similar to RING domains found in E3 ubiquitin ligases. In view of the importance of the ubiquitin-proteasome system in sorting within the endocytic pathway, we analyzed its role in downregulation of MHC class I complexes in cells expressing K3. Proteasome inhibitors as well as cysteine and aspartyl protease inhibitors stabilize MHC class I complexes in cells expressing K3. However, proteasome inhibitors differentially affect sorting of MHC class I complexes within the endocytic pathway and prevent their delivery to a dense endosomal compartment. In this compartment, the cytoplasmic tail of MHC class I complexes is cleaved by cysteine proteases. The complex is then cleaved within the plane of the membrane by an aspartyl protease, resulting in a soluble MHC class I fragment composed of the lumenal domain of the heavy chain, β₂-microglobulin (β₂m), and peptide. We conclude that K3 not only directs internalization, but also targets MHC class I complexes to a dense endocytic compartment on the way to lysosomes in a ubiquitin-proteasome-dependent manner.