Stalled ribosomes at the endoplasmic reticulum (ER) are covalently modified with the ubiquitin-like protein UFM1 on the 60S ribosomal subunit protein RPL26 (also known as uL24)^1,2. This modification, which is known as UFMylation, is orchestrated by the UFM1 ribosome E3 ligase (UREL) complex, comprising UFL1, UFBP1 and CDK5RAP3 (ref. ³). However, the catalytic mechanism of UREL and the functional consequences of UFMylation are unclear. Here we present cryo-electron microscopy structures of UREL bound to 60S ribosomes, revealing the basis of its substrate specificity. UREL wraps around the 60S subunit to form a C-shaped clamp architecture that blocks the tRNA-binding sites at one end, and the peptide exit tunnel at the other. A UFL1 loop inserts into and remodels the peptidyl transferase centre. These features of UREL suggest a crucial function for UFMylation in the release and recycling of stalled or terminated ribosomes from the ER membrane. In the absence of functional UREL, 60S-SEC61 translocon complexes accumulate at the ER membrane, demonstrating that UFMylation is necessary for releasing SEC61 from 60S subunits. Notably, this release is facilitated by a functional switch of UREL from a 'writer' to a 'reader' module that recognizes its product-UFMylated 60S ribosomes. Collectively, we identify a fundamental role for UREL in dissociating 60S subunits from the SEC61 translocon and the basis for UFMylation in regulating protein homeostasis at the ER.