The CXCL12/CXCR4 signaling axis plays an important role in human health and disease; however, the molecular mechanisms mediating CXCR4 signaling remain poorly understood. Ubiquitin modification of CXCR4 by the E3 ubiquitin ligase AIP4 is required for lysosomal sorting and degradation, which is mediated by the endosomal sorting complex required for transport (ESCRT) machinery. CXCR4 sorting is regulated by an interaction between endosomal localized arrestin-2 and STAM-1, an ESCRT-0 component. Here, we report a novel role for AIP4 and STAM-1 in regulation of CXCR4 signaling that is distinct from their function in CXCR4 trafficking. Depletion of AIP4 and STAM-1 by siRNA caused significant inhibition of CXCR4-induced ERK-1/2 activation, whereas overexpression of these proteins enhanced CXCR4 signaling. We further show that AIP4 and STAM-1 physically interact and that the proline-rich region in AIP4 and the SH3 domain in STAM-1 are essential for the interaction. Overexpression of an AIP4 catalytically inactive mutant and a mutant that shows poor binding to STAM-1 fails to enhance CXCR4-induced ERK-1/2 signaling, as compared with wild-type AIP4, suggesting that the interaction between AIP4 and STAM-1 and the ligase activity of AIP4 are essential for ERK-1/2 activation. Remarkably, a discrete subpopulation of AIP4 and STAM-1 resides in caveolar microdomains with CXCR4 and appears to mediate ERK-1/2 signaling. We propose that AIP4-mediated ubiquitination of STAM-1 in caveolae coordinates activation of ERK-1/2 signaling. Thus, our study reveals a novel function for ubiquitin in the regulation of CXCR4 signaling, which may be broadly applicable to other G protein-coupled receptors.