During DNA damage response (DDR), histone ubiquitination by RNF168 is a critical event, which orchestrates the recruitment of downstream DDR factors, e.g. BRCA1 and 53BP1. Here, we report USP7 deubiquitinase regulates the stability of RNF168. We showed that USP7 disruption impairs H2A and ultraviolet radiation (UVR)-induced γH2AX monoubiquitination, and decreases the levels of pBmi1, Bmi1, RNF168 and BRCA1. The effect of USP7 disruption was recapitulated by siRNA-mediated USP7 depletion. The USP7 disruption also compromises the formation of UVR-induced foci (UVRIF) and ionizing radiation-induced foci (IRIF) of monoubiquitinated H2A (uH2A) and polyubiquitinated H2AX/A, and subsequently affects UVRIF and IRIF of BRCA1 as well as the IRIF of 53BP1. USP7 was shown to physically bind RNF168 in vitro and in vivo. Overexpression of wild-type USP7, but not its interaction-defective mutant, prevents UVR-induced RNF168 degradation. The USP7 mutant is unable to cleave Ub-conjugates of RNF168 in vivo. Importantly, ectopic expression of RNF168, or both RNF8 and RNF168 together in USP7-disrupted cells, significantly rescue the formation of UVRIF and IRIF of polyubiquitinated H2A and BRCA1. Taken together, these findings reveal an important role of USP7 in regulating ubiquitin-dependent signaling via stabilization of RNF168.