The zinc finger-containing protein A20 is a negative regulator of TNF-induced JNK (c-Jun-N-terminal kinase) and NFkappaB (nuclear factor kappaB) signaling. A20 is an unusual enzyme that contains both ubiquitinating and deubiquitinating activities. Although A20 is mostly localized in the cytosol, our recent studies reveal that a fraction of A20 can associate with a lysosome-interacting compartment in a manner that requires its carboxy terminal zinc fingers, but independent of its ubiquitin modifying activities. Whether the lysosome-associated A20 has a function in cellular signaling is unclear. Here, we demonstrate that A20 is capable of targeting an associated signaling molecule such as TRAF2 to the lysosomes for degradation. This process is dependent on the membrane tethering zinc finger domains of A20, but does not require A20 ubiquitin modifying activity. Our findings suggest a novel mode of A20 action that involves lysosomal targeting of signal molecules bound to A20.