Specifically deubiquitinates 'Lys-120' of histone H2A (H2AK119Ub), a specific tag for epigenetic transcriptional repression, thereby acting as a coactivator. Deubiquitination of histone H2A is a prerequisite for subsequent phosphorylation at 'Ser-11' of histone H3 (H3S10ph), and is required for chromosome segregation when cells enter into mitosis. In resting B- and T-lymphocytes, phosphorylation by AURKB leads to enhance its activity, thereby maintaining transcription in resting lymphocytes. Regulates Hox gene expression via histone H2A deubiquitination. Prefers nucleosomal substrates. Does not deubiquitinate histone H2B. 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). Homotetramer. The UBP-type zinc finger binds 3 zinc ions that form a pair of cross-braced ring fingers encapsulated within a third zinc finger in the primary structure. It recognizes the C-terminal tail of free ubiquitin. Phosphorylated at the onset of mitosis and dephosphorylated during the metaphase/anaphase transition. Phosphorylation by AURKB enhances the deubiquitinase activity. Belongs to the peptidase C19 family. USP16 subfamily.