Background: Protein degradation is essential for cell homeostasis. Targeting of proteins for degradation is often achieved by specific protein sequences or posttranslational modifications such as ubiquitination. Methodology/Principal Findings: By using biochemical and genetic tools we have monitored the localization and degradation of endogenous and chimeric proteins in live primary cells by confocal microscopy and ultra-structural analysis. Here we identify an eight amino acid sequence from the C-terminus of the short-lived GTPase RhoB that directs the rapid degradation of both RhoB and chimeric proteins bearing this sequence through a lysosomal pathway. Elucidation of the RhoB degradation pathway unveils a mechanism dependent on protein isoprenylation and palmitoylation that involves sorting of the protein into multivesicular bodies, mediated by the ESCRT machinery. Moreover, RhoB sorting is regulated by late endosome specific lipid dynamics and is altered in human genetic lipid traffic disease. Conclusions/Significance: Our findings characterize a short-lived cytosolic protein that is degraded through a lysosomal pathway. In addition, we define a novel motif for protein sorting and rapid degradation, which allows controlling protein levels by means of clinically used drugs.