Thalidomide-like drugs such as lenalidomide are clinically important treatments for multiple myeloma and show promise for other B cell malignancies. The biochemical mechanisms underlying their antitumor activity are unknown. Thalidomide was recently shown to bind to, and inhibit, the cereblon ubiquitin ligase. Cereblon loss in zebrafish causes fin defects reminiscent of the limb defects seen in children exposed to thalidomide in utero. Here we show that lenalidomide-bound cereblon acquires the ability to target for proteasomal degradation two specific B cell transcription factors, Ikaros family zinc finger proteins 1 and 3 (IKZF1 and IKZF3). Analysis of myeloma cell lines revealed that loss of IKZF1 and IKZF3 is both necessary and sufficient for lenalidomide’s therapeutic effect, suggesting that the antitumor and teratogenic activities of thalidomide-like drugs are dissociable.