Transcriptional repression plays an essential role in many aspects of metazoan development. Drosophila hairy is a primary pair-rule gene encoding a basic helix-loop-helix class transcriptional repressor that is required for proper segmentation. Previous characterization of Hairy-binding proteins has implicated two different classes of histone deacetylase as mediators of Hairy repression. Here, we present the characterization of a novel Hairy-interacting protein (dTopors) that binds specifically to the basic region of Hairy, but does not affect the ability of Hairy to bind DNA. By reducing the gene dose of dtopors, we demonstrate that it acts genetically as an antagonist of Hairy-mediated transcriptional repression. Consistent with this genetic interaction, we show that that recombinant dTopors protein possesses ubiquitin-protein isopeptide ligase activity in vitro and that dTopors mediates Hairy polyubiquitination and can lead to Hairy degradation. This work provides the first evidence that regulated proteolysis of Hairy is required for correct segmentation.