A new ubiquitin-processing protease (Ubp-M) has been identified in mammalian cells that is phosphorylated at the onset of mitosis and dephosphorylated during the metaphase/anaphase transition. The carboxyl-terminal domain of this 823-aa protein can be phosphorylated in vitro with either extracts of mitotic cells or purified cdc-2/cyclin B complexes. Recombinant Ubp-M is able to deubiquitinate histone H2A in vitro, and the phosphorylated form is also enzymatically active. Wild-type Ubp-M, transiently expressed as green fluorescent protein-fusion proteins, localizes in the cytoplasm of cultured cells, but mutant forms, lacking an active-site cysteine, associate closely with mitotic chromosomes during all stages of cell division and remain within the nucleus during the postmitotic period. Cells transfected with plasmids containing mutant Ubp-M genes stop dividing and eventually undergo apoptosis. Ubp-M may deubiquitinate one or more critical proteins that are involved in the condensation of mitotic chromosomes, possibly acting selectively on histones H2A and H2B, the major ubiquitinated proteins of chromatin.