Transcriptional coregulators, including the acetyltransferase Tip60, have a key role in complex cellular processes such as differentiation. Whereas post-translational modifications have emerged as an important mechanism to regulate transcriptional coregulator activity, the identification of the corresponding demodifying enzymes has remained elusive. Here we show that the expression of the Tip60 protein, which is essential for adipocyte differentiation, is regulated through polyubiquitination on multiple residues. USP7, a dominant deubiquitinating enzyme in 3T3-L1 adipocytes and mouse adipose tissue, deubiquitinates Tip60 both in intact cells and in vitro and increases Tip60 protein levels. Furthermore, inhibition of USP7 expression and activity decreases adipogenesis. Transcriptome analysis reveals several cell cycle genes to be co-regulated by both Tip60 and USP7. Knockdown of either factor results in impaired mitotic clonal expansion, an early step in adipogenesis. These results reveal deubiquitination of a transcriptional coregulator to be a key mechanism in the regulation of early adipogenesis.