Ubiquilins are a family of cytosolic proteins that ferry ubiquitinated substrates to the proteasome for degradation. Recent work has demonstrated that Ubiquilins can also act as molecular chaperones, utilizing internal Sti1 domains to directly bind to hydrophobic sequences. Ubiquilins are associated with several neurodegenerative diseases with point mutations in UBQLN2 causing dominant, X-linked Amyotrophic Lateral Sclerosis (ALS). The molecular basis of Ubiquilin chaperone activity and how ALS mutations in the Sti1 domains affect Ubiquilin activity are poorly understood. This study presents the first crystal structure of the Sti1 domain from a fungal Ubiquilin homolog bound to a transmembrane domain (TMD). The structure reveals that two Sti1 domains form a head-to-head dimer, creating a hydrophobic cavity that accommodates two TMDs. Mapping the UBQLN2 sequence onto the structure shows that several ALS mutations are predicted to disrupt the hydrophobic groove. Using a newly developed competitive binding assay, we show that Ubiquilins preferentially bind to hydrophobic substrates with low helical propensity, motifs that are enriched in both substrates and in Ubiquilins. This study provides insights into the molecular and structural basis for Ubiquilin substrate binding, with broad implications for the role of the Sti1 domain in phase separation and ALS.