Hedgehog-regulated processing of the transcription factor cubitus interruptus (Ci) in Drosophila depends on phosphorylation of the C-terminal region of Ci by cAMP-dependent protein kinase and subsequently by casein kinase 1 and glycogen synthase kinase 3. Ci processing also requires Slimb, an F-box protein of SCF (Skp1/Cullin/F-box proteins) complex, and the proteasome, but the interplay between phosphorylation and the activity of Slimb and the proteasome remains unclear. Here we show that processing of the Gli3 protein, a homolog of Ci, also depends on phosphorylation of a set of four cAMP-dependent protein kinase sites that primes subsequent phosphorylation of adjacent casein kinase 1 and glycogen synthase kinase 3. Our gain- and loss-of-function analyses in cultured cells further reveal that betaTrCP, the vertebrate homolog of Slimb, is required for Gli3 processing, and we demonstrate that betaTrCP can bind phosphorylated Gli3 both in vitro and in vivo. We also find that the Gli3 protein is polyubiquitinated in the cell and that its processing depends on proteasome activity. Our findings provide evidence for a direct link between phosphorylation of Gli3/Ci proteins and betaTrCP/Slimb action, thus supporting the hypothesis that the processing of Gli3/Ci is affected by the proteasome.