Ubiquitin hydrolase that can remove conjugated ubiquitin from target proteins and polyubiquitin chains (PubMed:24173801). Essential for Myc-mediated cell growth and proliferation in developing eyes and wings (PubMed:24173801). In the wing and eye, the deubiquitinating activity acts as an antagonist to the SCF E3 ubiquitin-protein ligase member archipelago (ago) to regulate Myc and CycE stability and thus control cell growth and proliferation (PubMed:24173801). Also appears to regulate ago by modulating its induction by Myc (PubMed:24173801). May also promote cell apoptosis in the wing imaginal disk, acting in an apoptotic pathway that appears to be largely independent of Myc (PubMed:24173801). Required for preventing the activation of the immune deficiency (Imd) and Toll signaling cascades under unchallenged conditions (PubMed:25027767). Also appears to be involved in modulating the differential expression of certain antimicrobial peptides (AMP) in response to infection by either Gram-positive or Gram-negative bacteria (PubMed:25027767). 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). Interacts with Myc and ago. RNAi-mediated knockdown is pupal lethal (PubMed:24173801). RNAi-mediated knockdown in the dorsal part of the larval wing disk results in adult wings displaying an upward curvature possibly due to cells on the dorsal side being relatively smaller than cells on the ventral side (PubMed:24173801). RNAi-mediated knockdown in the fat body results in the activation of the Imd and Toll signaling pathways under unchallenged conditions, with constitutive expression of Toll (Drs, IM1) and Imd (DptA, Def, Atta) antimicrobial peptides (PubMed:25027767). Flies infected with E.coli display enhanced expression of Atta compared to controls, whereas expression levels of DptA and Def are decreased (PubMed:25027767). Flies infected with M.luteus display increased expression of Drs, IM1 and also Atta 3 h after infection, whereas 24 h after infection increased expression is only maintained in Atta and IM1 (PubMed:25027767). Double knockdown with imd prevents the enhanced expression of Atta and DptA in uninfected and infected flies (PubMed:25027767). The name 'Puffyeye' derives from its role in regulating the Myc-dependent rough eye phenotype. Belongs to the peptidase C19 family.