A wide variety of RNAs encode small open-reading-frame (smORF/sORF) peptides, but their functions are largely unknown. Here, we show that Drosophila polished-rice (pri) sORF peptides trigger proteasome-mediated protein processing, converting the Shavenbaby (Svb) transcription repressor into a shorter activator. A genome-wide RNA interference screen identifies an E2-E3 ubiquitin-conjugating complex, UbcD6-Ubr3, which targets Svb to the proteasome in a pri-dependent manner. Upon interaction with Ubr3, Pri peptides promote the binding of Ubr3 to Svb. Ubr3 can then ubiquitinate the Svb N terminus, which is degraded by the proteasome. The C-terminal domains protect Svb from complete degradation and ensure appropriate processing. Our data show that Pri peptides control selectivity of Ubr3 binding, which suggests that the family of sORF peptides may contain an extended repertoire of protein regulators.