The ubiquitin-like protein, Nedd8, covalently modifies members of the Cullin family. Cullins are the major components of a series of ubiquitin ligases that control the degradation of a broad range of proteins. We found that Nedd8 modifies Cul1 in Drosophila. InDrosophila Nedd8 and Cul1 mutants, protein levels of the signal transduction effectors, Cubitus interruptus (Ci) and Armadillo (Arm), and the cell cycle regulator, Cyclin E (CycE), are highly accumulated, suggesting that the Cul1-based SCF complex requires Nedd8 modification for the degradation processes of Ci, Arm, and CycE in vivo. We further show that two distinct degradation mechanisms modulating Ci stability in the developing eye disc are separated by the morphogenetic furrow (MF) in which retinal differentiation is initiated. In cells anterior to the MF, Ci proteolytic processing promoted by PKA requires the activity of the Nedd8-modified Cul1-based SCF^Slimb complex. In posterior cells, Ci degradation is controlled by a mechanism that requires the activity of Cul3, another member of the Cullin family. This posterior Ci degradation mechanism, which partially requires Nedd8 modification, is activated by Hedgehog (Hh) signaling and is PKA-independent.