Significant progress has been made over the past few years in elucidating the structural principles and the enzymatic mechanism of the 20S proteasome. As a result, the proteasome has become the prototype of a new family of enzymes, the Ntn hydrolases, as well as a paradigm for macromolecular assemblies that confine their proteolytic activity to an inner nanocompartment. Since access to this nanocompartment is restricted to unfolded substrate polypeptides, the 20S proteasome must be functionally linked to a substrate recognition and unfolding machinery. In eukaryotes this is provided by the 19S 'cap' complex, which associates with the 20S core to form the 26S proteasome, a protease capable of degrading ubiquitinated proteins in an ATP-dependent manner.