SOX2 is a dose-dependent master stem cell protein that controls the self-renewal and pluripotency or multipotency of embryonic stem (ES) cells and many adult stem cells. We have previously found that SOX2 protein is monomethylated at lysine residues 42 and 117 by SET7 methyltransferase to promote SOX2 proteolysis, whereas LSD1 and PHF20L1 act on both methylated Lys-42 and Lys-117 to prevent SOX2 proteolysis. However, the mechanism by which the methylated SOX2 protein is degraded remains unclear. Here, we report that L3MBTL3, a protein with the malignant-brain-tumor (MBT) methylation-binding domain, is required for SOX2 proteolysis. Our studies showed that L3MBTL3 preferentially binds to the methylated Lys-42 in SOX2, although mutation of Lys-117 also partially reduces the interaction between SOX2 and L3MBTL3. The direct binding of L3MBTL3 to the methylated SOX2 protein leads to the recruitment of the CRL4DCAF5 ubiquitin E3 ligase to target SOX2 protein for ubiquitin-dependent proteolysis. Whereas loss of either LSD1 or PHF20L1 destabilizes SOX2 protein and impairs the self-renewal and pluripotency of mouse ES cells, knockdown of L3MBTL3 or DCAF5 is sufficient to restore the protein levels of SOX2 and rescue the defects of mouse ES cells caused by LSD1 or PHF20L1 deficiency. We also found that retinoic acid-induced differentiation of mouse ES cells is accompanied by the enhanced degradation of the methylated SOX2 protein at both Lys-42 and Lys-117. Our studies provide novel insights into the mechanism by which the methylation-dependent degradation of SOX2 protein is controlled by the L3MBTL3-CRL4DCAF5 ubiquitin ligase complex.