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Modular protein domains are functional units that can be modified through the acquisition of new intrinsic activities or by the formation of novel domain combinations, thereby contributing to the evolution of proteins with new biological properties. Here, we assign proteins to groups with related domain compositions and functional properties, termed “domain clubs,” which we use to compare multiple eukaryotic proteomes. This analysis shows that different domain types can take distinct evolutionary trajectories, which correlate with the conservation, gain, expansion, or decay of particular biological processes. Evolutionary jumps are associated with a domain that coordinately acquires a new intrinsic function and enters new domain clubs, thereby providing the modified domain with access to a new cellular microenvironment. We also coordinately analyzed the covalent and noncovalent interactions of different domain types to assess the molecular compartment occupied by each domain. This reveals that specific subsets of domains demarcate particular cellular processes, such as growth factor signaling, chromatin remodeling, apoptotic and inflammatory responses, or vesicular trafficking. We suggest that domains, and the proteins in which they reside, are selected during evolution through reciprocal interactions with protein domains in their local microenvironment. Based on this scheme, we propose a mechanism by which Tudor domains may have evolved to support different modes of epigenetic regulation and suggest a role for the germline group of mammalian Tudor domains in Piwi-regulated RNA biology.