The ubiquitin homolog interferon stimulated gene 15 (ISG15) is up-regulated in the endometrium in response to pregnancy in primates, ruminants, pigs, and mice. ISG15 covalently attaches to intracellular proteins (isgylation) and regulates numerous intracellular responses. We hypothesized that ISG15 depletion (Isg15−/−) alters decidual tissue gene expression and that IL-1β induces ISG15 expression and isgylation in cultured murine decidual explants and human uterine fibroblasts (HuFs). After studying the reproductive phenotype, contrary to earlier reports, up to 50% of the fetuses die between 7.5 and 12.5 d post coitum (dpc) in Isg15−/− mothers when mated to Isg15−/− fathers. Using microarray analysis, over 500 genes are differentially regulated in 7.5 dpc deciduas from Isg15−/− compared with Isg15+/+ mice. The gene for interferon-inducible protein 202b, which functions in cell-survival mechanisms, was up-regulated (mRNA and protein) in deciduas from Isg15−/− mice. Culture of Isg15+/+ mouse decidual explants (7.5 dpc) with IL-1β decreased Isg15 mRNA but increased free and conjugated ISG15. In predecidual HuF cells, IL-1β treatment increased ISG15 mRNA and isgylation. Additionally, IL-1β up-regulated expression of enzymes (HERC5, UBCH8) that coordinate the covalent conjugation of ISG15 to target proteins, as well as the gene that encodes the deisglyation enzyme UBP43 in HuF cells. In conclusion, deletion of Isg15 gene results in 50% fetal loss after 7.5 dpc, which can be explained through differential decidual gene expression that is functionally tied to cell survival and adhesion pathways. This fetal death also might relate to impaired IL-1β signaling, because ISG15 and isgylation are induced by IL-1β in human and murine endometrial stromal cells.