The deubiquitinating enzyme heterodimeric complex USP1-UAF1 regulates the Fanconi anemia (FA) DNA repair pathway. Absence of this complex leads to increased cellular levels of ubiquitinated FANCD2 (FANCD2-Ub) and ubiquitinated PCNA (PCNA-Ub). Mice deficient in the catalytic subunit of the complex, USP1, exhibit an FA-like phenotype and have a cellular deficiency in homologous-recombination (HR) repair. Here, we have characterized mice deficient in the UAF1 subunit. Uaf1(+/-) mice were small at birth and exhibited reduced fertility, thus resembling Usp1(-/-) mice. Unexpectedly, homozygous Uaf1(-/-) embryos died at embryonic day 7.5 (E7.5). These mutant embryos were small and developmentally retarded. As expected, Uaf1 deficiency in mice led to increased levels of cellular Fancd2-Ub and Pcna-Ub. Uaf1(+/-) murine embryonic fibroblasts (MEFs) exhibited profound chromosome instability, genotoxin hypersensitivity, and a significant defect in homologous-recombination repair. Moreover, Uaf1(-/-) mouse embryonic stem cells (mESCs) showed chromosome instability, genotoxin hypersensitivity, and impaired Fancd2 focus assembly. Similar to USP1 knockdown, UAF1 knockdown in tumor cells caused suppression of tumor growth in vivo. Taken together, our data demonstrate the important regulatory role of the USP1-UAF1 complex in HR repair through its regulation of the FANCD2-Ub and PCNA-Ub cellular pools.