The concentrations of the Drosophila proteasomal and extraproteasomal polyubiquitin receptors fluctuate in a developmentally regulated fashion. This fluctuation is generated by a previously unidentified proteolytic activity. In the present paper, we describe the purification, identification and characterization of this protease (endoproteinase I). Its expression increases sharply at the L1-L2 larval stages, remains high until the second half of the L3 stage, then declines dramatically. This sharp decrease coincides precisely with the increase of polyubiquitin receptor concentrations in late L3 larvae, which suggests a tight developmental co-regulation. RNAi-induced down-regulation of endoproteinase I results in pupal lethality. Interestingly, we found a cross-talk between the 26S proteasome and this larval protease: transgenic overexpression of the in vivo target of endoproteinase I, the C-terminal half of the proteasomal polyubiquitin receptor subunit p54/Rpn10 results in transcriptional down-regulation of endoproteinase I and consequently a lower level of proteolytic elimination of the polyubiquitin receptors. Another larval protease, Jonah65A-IV, which degrades only unfolded proteins and exhibits similar cross-talk with the proteasome has also been purified and characterized. It may prevent the accumulation of polyubiquitylated proteins in larvae contrary to the low polyubiquitin receptor concentration.