While it is widely acknowledged that the ubiquitin-proteasome system plays an important role in transcription, little is known concerning the mechanistic basis, in particular the spatial organization of proteasome-dependent proteolysis at the transcription site. Here, we show that proteasomal activity and tetraubiquitinated proteins concentrate to nucleoplasmic microenvironments in the euchromatin. Such proteolytic domains are immobile and distinctly positioned in relation to transcriptional processes. Analysis of gene arrays and early genes in Caenorhabditis elegans embryos reveals that proteasomes and proteasomal activity are distantly located relative to transcriptionally active genes. In contrast, transcriptional inhibition generally induces local overlap of proteolytic microdomains with components of the transcription machinery and degradation of RNA polymerase II. The results establish that spatial organization of proteasomal activity differs with respect to distinct phases of the transcription cycle in at least some genes, and thus might contribute to the plasticity of gene expression in response to environmental stimuli. © 2011 The Author(s).