Alterations in the ubiquitin-proteasome system (UPS) have been reported in several neurodegenerative disorders characterized by protein misfolding and aggregation, including the polylgutamine diseases. Machado-Joseph disease (MJD) or Spinocerebellar Ataxia type 3 is caused by a polyglutamine-encoding CAG expansion in the ATXN3 gene, which encodes a 42 kDa deubiquitinating enzyme (DUB), ataxin-3. We investigated ataxin-3 deubiquitinating activity and the functional relevance of ataxin-3 interactions with two proteins previously described to interact with ataxin-3, hHR23A and valosin-containing protein (VCP/p97). We confirmed ataxin-3 affinity for both hHR23A and VCP/p97. hHR23A and ataxin-3 were shown to co-localize in discrete nuclear foci, while VCP/p97 was primarily cytoplasmic. hHR23A and VCP/p97 recombinant proteins were added, separately or together, to normal and expanded ataxin-3 in in vitro deubiquitination assays to evaluate their influence on ataxin-3 activity. VCP/p97 was shown to be an activator specifically of wild-type ataxin-3, exhibiting no effect on expanded ataxin-3, In contrast, we observed no significant alterations in ataxin-3 enzyme kinetics or substrate preference in the presence of hHR23A alone or in combination with VCP. Based on our results we propose a model where ataxin-3 normally functions with its interactors to specify the cellular fate of ubiquitinated proteins.