The accumulation of protein deposits in neurons, in vitro proteasome assays and over-expression studies suggest that impairment of the ubiquitin-proteasome system (UPS) may be a common mechanism of pathogenesis in polyglutamine diseases such as Huntington disease and spinocerebellar ataxias (SCAs). Using a knock-in mouse model that recapitulates the clinical features of human SCA7, including selective neuronal dysfunction, we assessed the UPS at cellular resolution using transgenic mice that express a green fluorescent protein (GFP)-based reporter substrate (Ub(G76V)-GFP) of the UPS. The levels of the reporter remained low during the initial phase of disease, suggesting that neuronal dysfunction occurs in the presence of a functional UPS. Late in disease, we observed a significant increase in reporter levels specific to the most vulnerable neurons. Surprisingly, the basis for the increase in Ub(G76V)-GFP protein can be explained by a corresponding increase in Ub(G76V)-GFP mRNA in the vulnerable neurons. An in vitro assay also showed normal proteasome proteolytic activity in the vulnerable neurons. Thus, no evidence for general UPS impairment or reduction of proteasome activity was seen. The differential increase of Ub(G76V)-GFP among individual neurons directly correlated with the down-regulation of a marker of selective pathology and neuronal dysfunction in SCA7. Furthermore, we observed a striking inverse correlation between the neuropathology revealed by this reporter and ataxin-7 nuclear inclusions in the vulnerable neurons. Altogether, these data show a protective role against neuronal dysfunction for polyglutamine nuclear inclusions and exclude significant impairment of the UPS as a necessary step for polyglutamine neuropathology.