Inhibitors of DNA binding (IDs) antagonize basic-helix-loop-helix (bHLH) transcription factors to inhibit differentiation and maintain stem cell fate. ID ubiquitination and proteasomal degradation occur in differentiated tissues, but IDs in many neoplasms appear to escape degradation. We show that the deubiquitinating enzyme USP1 promotes ID protein stability and stem cell-like characteristics in osteosarcoma. USP1 bound, deubiquitinated, and thereby stabilized ID1, ID2, and ID3. A subset of primary human osteosarcomas coordinately overexpressed USP1 and ID proteins. USP1 knockdown in osteosarcoma cells precipitated ID protein destabilization, cell-cycle arrest, and osteogenic differentiation. Conversely, ectopic USP1 expression in mesenchymal stem cells stabilized ID proteins, inhibited osteoblastic differentiation, and enhanced proliferation. Consistent with USP1 functioning in normal mesenchymal stem cells, USP1-deficient mice were osteopenic. Our observations implicate USP1 in preservation of the stem cell state that characterizes osteosarcoma and identify USP1 as a target for differentiation therapy.