Intracellular protein degradation is an essential process in all life domains. While in all eukaryotes regulated protein degradation involves ubiquitin tagging and the 26S-proteasome, bacterial prokaryotic ubiquitin-like protein (Pup) tagging and proteasomes are conserved only in species belonging to the phyla Actinobacteria and Nitrospira. In Mycobacterium tuberculosis, the Pup-proteasome system (PPS) is important for virulence, yet its physiological role in non-pathogenic species has remained an enigma. We now report, using Mycobacterium smegmatis as a model organism, that the PPS is essential for survival under starvation. Upon nitrogen limitation, PPS activity is induced, leading to accelerated tagging and degradation of many cytoplasmic proteins. We suggest a model in which the PPS functions to recycle amino acids under nitrogen starvation, thereby enabling the cell to maintain basal metabolic activities. We also find that the PPS auto-regulates its own activity via pupylation and degradation of its components in a manner that promotes the oscillatory expression of PPS components. As such, the destructive activity of the PPS is carefully balanced to maintain cellular functions during starvation.