Ufd1 mediates ubiquitin fusion degradation by association with Npl4 and Cdc48/p97. The Ufd1-ubiquitin interaction is essential for transfer of substrates to the proteasome. However, the mechanism and specificity of ubiquitin recognition by Ufd1 are poorly understood due to the lack of detailed structural information. Here, we present the solution structure of yeast Ufd1 N domain and show that it has two distinct binding sites for mono- and polyubiquitin. The structure exhibits striking similarities to the Cdc48/p97 N domain. It contains the double-psi beta barrel motif, which is thus identified as a ubiquitin binding domain. Significantly, Ufd1 shows higher affinity toward polyubiquitin than monoubiquitin, attributable to the utilization of separate binding sites with different affinities. Further studies revealed that the Ufd1-ubiquitin interaction involves hydrophobic contacts similar to those in well-characterized ubiquitin binding proteins. Our results provide a structural basis for a previously proposed synergistic binding of polyubiquitin by Cdc48/p97 and Ufd1.