Ubiquilins are molecular chaperones that play multifaceted roles in proteostasis, with point mutations in UBQLN2 leading to altered phase separation properties and Amyotrophic Lateral Sclerosis (ALS). Our mechanistic understanding of this essential process has been hindered by a lack of structural information on the Sti1 domain, which is essential for Ubiquilin chaperone activity and phase separation. Here, we present the first crystal structure of a Ubiquilin family Sti1 domain bound to a transmembrane domain (TMD) and show that ALS mutations disrupt the Sti1-TMD interaction. We then demonstrate that Ubiquilins contain multiple conserved, internal sequences that bind to the Sti1 domain, including the PXX region which is a hotspot for ALS mutations. We propose that these placeholder sequences prevent solvent exposure of the Sti1 hydrophobic groove and contribute to the multivalency that drives Ubiquilin phase separation. Together, this work provides a new paradigm for understanding how Sti1 domains modulate Ubiquilin chaperone activity and phase separation and offer insights into the molecular basis of ALS pathogenesis.