The human YME1L protease is a membrane-anchored AAA+ enzyme that controls proteostasis at the inner membrane and intermembrane space of mitochondria. Understanding how YME1L recognizes substrates and catalyses ATP-dependent degradation has been hampered by the presence of an insoluble transmembrane anchor that drives hexamerization of the catalytic domains to form the ATPase active sites. Here, we overcome this limitation by replacing the transmembrane domain with a soluble hexameric coiled coil to produce active YME1L hexamers that can be studied in vitro. We use these engineered proteases to reveal principles of substrate processing by YME1L. Degradation by YME1L requires substrates to present an accessible signal sequence and is not initiated simply by substrate unfolding. The protease is also capable of processively unfolding substrate proteins with substantial thermodynamic stabilities. Lastly, we show that YME1L discriminates between degradation signals by amino acid composition, implying the use of sequence-specific signals in mitochondrial proteostasis.