Ubiquitination regulates the stability and/or activity of numerous cellular proteins. The corollary is that de-ubiquitinating enzymes, which 'trim' polyubiquitin chains from specific substrate proteins, play key roles in controlling fundamental cellular activities. Ubiquitin is essential at several stages during the activation of NF-kappaB (nuclear factor kappaB), a central co-ordinator of inflammation and other immune processes. Ubiquitination is known to cause degradation of the inhibitory molecule IkappaBalpha (inhibitor of kappaB). In addition, activation of TRAF (tumour-necrosis-factor-receptor-associated factor) and IKKgamma (IkappaB kinase gamma)/NEMO (NF-kappaB essential modifier) signal adaptors relies on their modification with 'nonclassical' forms of polyubiquitin chains. Ubiquitin also plays a key role in determining cell fate by modulating the stability of numerous pro-apoptotic or anti-apoptotic proteins. The zinc-finger protein A20 has dual functions in inhibiting NF-kappaB activation and suppressing apoptosis. The molecular mechanisms of these anti-inflammatory and cytoprotective effects are unknown. Here we demonstrate that A20 is a de-ubiquitinating enzyme. It contains an N-terminal catalytic domain that belongs to the ovarian-tumour superfamily of cysteine proteases. A20 cleaved ubiquitin monomers from branched polyubiquitin chains linked through Lys48 or Lys63 and bound covalently to a thiol-group-reactive, ubiquitin-derived probe. Mutation of a conserved cysteine residue in the catalytic site (Cys103) abolished these activities. A20 did not have a global effect on ubiquitinated cellular proteins, which indicates that its activity is target-specific. The biological significance of the catalytic domain is unknown.