This paper reports that CYLD is a deubiquitinating enzyme that negatively regulates NF-κB activation by TNFR family members. CYLD inhibits NF-κB activation by CD40, XEDAR, and EDAR through its deubiquitinating activity. Loss of CYLD's deubiquitinating activity correlates with tumorigenesis. CYLD inhibits NF-κB activation by deubiquitinating and inactivating TRAF2 and, to a lesser extent, TRAF6. These findings indicate that CYLD is a negative regulator of cytokine-mediated NF-κB activation, essential for maintaining cellular homeostasis in skin appendages. CYLD interacts with NEMO, a component of the IKK complex, and its deubiquitinating activity is essential for inhibiting NF-κB activation. CYLD's deubiquitinating activity is independent of other mammalian proteins and is detectable in bacteria. CYLD's deubiquitinating activity is abolished by replacing the conserved catalytic residue Cys 601 with serine. CYLD inhibits NF-κB activation by CD40, XEDAR, and EDAR. CYLD(538–953), which is catalytically active but does not bind to NEMO, fails to inhibit CD40-mediated NF-κB activation, suggesting that the inhibitory activity of CYLD depends on NEMO. Wild-type CYLD also inhibits NF-κB activation induced by the Epstein-Barr virus oncoprotein LMP1, which mimics activated CD40. To test whether endogenous CYLD functions as an inhibitory factor of NF-κB, short interfering RNA (siRNA) was used to reduce CYLD expression. This resulted in a significant augmentation of both basal and CD40-ligand-induced NF-κB activity, reinforcing the notion that CYLD acts as a negative regulator of the NF-κB pathway. CYLD inhibits TNFR-mediated NF-κB activation by deubiquitinating TRAF2 and TRAF6. This mechanism is based on the CYLD-dependent deubiquitination of TRAF2 and/or TRAF6. Expression of wild-type CYLD reduces TRAF2 polyubiquitination to background levels, while the CYLD(1–932) deubiquitinase-deficient mutant causes a small increase in TRAF2 polyubiquitination, consistent with a possible dominant-negative effect. Deubiquitination of TRAF2 by CYLD does not affect the steady-state quantities of protein. These findings suggest that CYLD targets the Lys-63-linked non-degradative polyubiquitination of TRAF2, which may be related to its ability to activate NF-κB. CYLD might also inhibit the NF-This paper reports that CYLD is a deubiquitinating enzyme that negatively regulates NF-κB activation by TNFR family members. CYLD inhibits NF-κB activation by CD40, XEDAR, and EDAR through its deubiquitinating activity. Loss of CYLD's deubiquitinating activity correlates with tumorigenesis. CYLD inhibits NF-κB activation by deubiquitinating and inactivating TRAF2 and, to a lesser extent, TRAF6. These findings indicate that CYLD is a negative regulator of cytokine-mediated NF-κB activation, essential for maintaining cellular homeostasis in skin appendages. CYLD interacts with NEMO, a component of the IKK complex, and its deubiquitinating activity is essential for inhibiting NF-κB activation. CYLD's deubiquitinating activity is independent of other mammalian proteins and is detectable in bacteria. CYLD's deubiquitinating activity is abolished by replacing the conserved catalytic residue Cys 601 with serine. CYLD inhibits NF-κB activation by CD40, XEDAR, and EDAR. CYLD(538–953), which is catalytically active but does not bind to NEMO, fails to inhibit CD40-mediated NF-κB activation, suggesting that the inhibitory activity of CYLD depends on NEMO. Wild-type CYLD also inhibits NF-κB activation induced by the Epstein-Barr virus oncoprotein LMP1, which mimics activated CD40. To test whether endogenous CYLD functions as an inhibitory factor of NF-κB, short interfering RNA (siRNA) was used to reduce CYLD expression. This resulted in a significant augmentation of both basal and CD40-ligand-induced NF-κB activity, reinforcing the notion that CYLD acts as a negative regulator of the NF-κB pathway. CYLD inhibits TNFR-mediated NF-κB activation by deubiquitinating TRAF2 and TRAF6. This mechanism is based on the CYLD-dependent deubiquitination of TRAF2 and/or TRAF6. Expression of wild-type CYLD reduces TRAF2 polyubiquitination to background levels, while the CYLD(1–932) deubiquitinase-deficient mutant causes a small increase in TRAF2 polyubiquitination, consistent with a possible dominant-negative effect. Deubiquitination of TRAF2 by CYLD does not affect the steady-state quantities of protein. These findings suggest that CYLD targets the Lys-63-linked non-degradative polyubiquitination of TRAF2, which may be related to its ability to activate NF-κB. CYLD might also inhibit the NF-