DNA polymerase eta (Polη) has unique and pivotal functions in several DNA damage-tolerance pathways. Steady-state level of this short-lived protein is tightly controlled by multiple mechanisms including proteolysis. Here, we have identified the deubiquitinating enzyme (DUB), ubiquitin-specific protease 7 (USP7), as a novel regulator of Polη stability. USP7 regulates Polη stability through both indirect and direct mechanisms. Knockout of USP7 increased the steady-state level of Polη and slowed down the turnover of both Polη and p53 proteins through destabilizing their E3 ligase murine double minute 2 (Mdm2). Also, USP7 physically binds Polη in vitro and in vivo. Overexpression of wild-type USP7 but not its catalytically-defective mutants deubiquitinates Polη and increases its cellular steady-state level. Thus, USP7 directly serves as a specific DUB for Polη. Furthermore, ectopic expression of USP7 promoted the UV-induced proliferating cell nuclear antigen (PCNA) monoubiquitination in Polη-proficient but not in Polη-deficient XPV (Xeroderma pigmentosum variant) cells, suggesting that USP7 facilitates UV-induced PCNA monoubiquitination by stabilizing Polη. Taken together, our findings reveal a modulatory role of USP7 in PCNA ubiquitination-mediated stress-tolerance pathways by fine-tuning Polη turnover.