Hydrolase that can specifically remove 'Lys-48'-linked conjugated ubiquitin from proteins and plays an important regulatory role at the level of protein turnover by preventing degradation. Regulator of T-cell anergy, a phenomenon that occurs when T-cells are rendered unresponsive to antigen rechallenge and no longer respond to their cognate antigen. Acts via its interaction with RNF128/GRAIL, a crucial inductor of CD4 T-cell anergy. Isoform 1 destabilizes RNF128, leading to prevent anergy. In contrast, isoform 2 stabilizes RNF128 and promotes anergy. Surprisingly, it regulates RNF128-mediated ubiquitination, but does not deubiquitinate polyubiquitinated RNF128. Deubiquitinates estrogen receptor alpha (ESR1). Mediates deubiquitination of 'Lys-48'-linked polyubiquitin chains, but not 'Lys-63'-linked polyubiquitin chains. Not able to cleave di-ubiquitin. Also capable of removing NEDD8 from NEDD8 conjugates, but with a much lower preference compared to 'Lys-48'-linked ubiquitin. Plays a key non-catalytic role in DNA repair regulation by inhibiting activity of RNF168, an E3 ubiquitin-protein ligase that promotes accumulation of 'Lys-63'-linked histone H2A and H2AX at DNA damage sites. Inhibits RNF168 independently of ubiquitin thioesterase activity by binding and inhibiting UBE2N/UBC13, the E2 partner of RNF168, thereby limiting spreading of 'Lys-63'-linked histone H2A and H2AX marks. Inhibition occurs by binding to free ubiquitin: free ubiquitin acts as an allosteric regulator that increases affinity for UBE2N/UBC13 and disrupts interaction with UBE2V1. The OTUB1-UBE2N/UBC13-free ubiquitin complex adopts a configuration that mimics a cleaved 'Lys48'-linked di-ubiquitin chain. Thiol-dependent hydrolysis of ester, thioester, amide, peptide and isopeptide bonds formed by the C-terminal Gly of ubiquitin (a 76-residue protein attached to proteins as an intracellular targeting signal). By free ubiquitin: binding of free ubiquitin triggers conformational changes in the OTU domain and formation of a ubiquitin-binding helix in the N-terminus, promoting binding of the conjugated donor ubiquitin in UBE2N/UBC13 to OTUB1. Isoform 1 and isoform 2 interact with RNF128. Isoform 1 forms a ternary complex with RNF128 and USP8. Isoform 1 interacts with the C-terminal UCH catalytic domain of USP8. Isoform 2 does not associate with USP8. Interacts with FUS, ESR1 and RACK1. Interacts with UBE2N/UBC13. Isoform 1 is ubiquitous. Isoform 2 is expressed only in lymphoid tissues such as tonsils, lymph nodes and spleen, as well as peripheral blood mononuclear cells. In addition to ubiquitin-binding at the Cys-91 active site, a proximal ubiquitin-binding site is also present at Cys-23 Occupancy of the active site is needed to enable tight binding to the second site. Distinct binding sites for the ubiquitins may allow to discriminate among different isopeptide linkages (i.e. 'Lys-48'-, 'Lys-63'-linked polyubiquitin) in polyubiquitin substrates and achieve linkage-specific deubiquitination. In the structure described by PubMed:18954305, the His-265 active site of the catalytic triad is located too far to interact directly with the active site Cys-91. A possible explanation is that OTUB1 is in inactive conformation in absence of ubiquitin and a conformation change may move His-265 in the proximity of Cys-91 in presence of ubiquitin substrate. Lacks the catalytic sites for protease activity. Belongs to the peptidase C65 family.