Agonist-mediated degradation of estrogen receptor α (ERα) has been associated with its transcriptional activity. However, the mechanism by which ERα is targeted for degradation and whether there is a direct functional link between ERα stability and ERα-mediated transactivation have not been elucidated. Here we provide evidence that the p160 coactivator, AIB1, uniquely mediates agonist-induced, but not antagonist-induced, ERα degradation. We show that AIB1 recruitment by ERα is not only necessary but also sufficient to promote degradation. Suppression of AIB1 levels leads to ERα stabilization in the presence of 17β-estradiol and, despite increased ERα levels, reduced recruitment of ERα to endogenous target gene promoters. In addition, association of RNA polymerase II with ERα target promoters is lost when AIB1 is suppressed, leading to inhibition of target gene transcription. AIB1 thus plays a dual role in regulating ERα activity, one in recruiting transcription factors including other coactivators involved in gene activation and the other in regulating ERα protein degradation mediated by the ubiquitin–proteosome machinery.