The endoplasmic reticulum (ER) membrane protein 3-hydroxy-3-methylglutaryl-coenzyme A (HMG-CoA) reductase is subject to regulated degradation when cells are presented with an excess of sterols or mevalonate. In this report, we demonstrate the degradation of HMGCoA reductase in ER membranes prepared from cells which have been pretreated with mevalonate or sterols prior to membrane purification. Degradation of HMGCoA reductase in membranes prepared from pretreated cells is more rapid than in membranes prepared from cells which have received no regulatory molecules. In vitro degradation is blocked by protease inhibitors previously shown to inhibit reductase degradation in vivo and is specific for intact HMG-CoA reductase. The lumenal contents of the ER membranes are dispensible for the regulated proteolysis and the proteases responsible for reductase degradation are stably associated with the ER membrane. Regulated proteolysis of HMG-CoA reductase is inhibited by lactacystin, a newly defined inhibitor of the multicatalytic protease, the proteasome, and in vitro degradation of reductase correlates with the presence of proteasome subunits in purified ER membranes. The ubiquitin system for protein degradation, which has recently been shown to be required for the degradation of several ER membrane proteins, is not required for the degradation of HMG-CoA reductase. Finally, we conclude that the regulated proteolysis of HMG-CoA reductase in response to regulatory molecules such as mevalonate or sterols is mediated by increased susceptibility of the reductase to ER proteases, rather than the induction of a new proteolytic activity.