Monoubiquitination of endocytosed cell surface receptors serves as a sorting signal for their trafficking from endosomes to lysosomes. The sorting of ubiquitinated proteins is executed by concerted actions of class E vacuolar protein sorting (Vps) proteins. Some proteins in the sorting machinery undergo monoubiquitination, suggesting that their functions are also regulated by ubiquitination. The Hrs–STAM complex, a class E Vps protein complex essential for the initial step of the sorting pathway, binds two deubiquitinating enzymes, UBPY and AMSH. Here we examined the effects of inactivating UBPY on protein ubiquitination at endosomes. Overexpression of a catalytically inactive UBPY mutant or depletion of UBPY by RNA interference resulted in the accumulation of ubiquitinated proteins on morphologically aberrant endosomes. Electron microscopy showed that they are aggregates of multivesicular endosomes. Among the sorting machinery proteins that undergo ubiquitination, Eps15 was monoubiquitinated at an elevated level in UBPY-inactivated cells. UBPY also deubiquitinated Eps15 in vitro, suggesting that Eps15 is a cellular substrate for UBPY. Furthermore, inactivation of UBPY caused the accumulation of Eps15 on the endosomal aggregates. These results suggest that UBPY regulates the level of protein ubiquitination on endosomes, which is required for maintaining the morphology of the organelle.