The building units of chromatin, the histones, are modified by the covalent attachment of a variety of groups including acetyl, methyl and ubiquityl to modulate DNA-dependent processes in eukaryotic organisms. In the budding yeast S. cerevisiae, mono-ubiquitylation of histone H2B at residue lysine 123 is important for the regulation of gene specific and regional genomic control, and determines the methylation status of histone H3. The ubiquitin protease UBP8 is a component of the SAGA co-activator complex and it is involved in gene regulation through its deubiquitylating activity on histone H2B. Here, we have undertaken a structure-function study of UBP8. Using mutagenesis, we have identified a putative zinc binding domain within Ubp8 as critical for SAGA association. This domain is required for H2B deubiquitylation, and for Ubp8's function in gene activation. Telomeres, silent mating type loci and rDNA locus in budding yeast are functionally similar to metazoan heterochromatin where position effects cause gene silencing. In addition to silent information regulatory (SIR ) and other proteins, histone modifications such as H4 acetylation and H3 methylation have also been implicated in silencing in budding yeast. Ubiquitin protease UBP10/DOT4 was isolated in a genetic screen for telomeric gene silencing. Both overexpression and deletion of UBP10 were shown to result in silencing defects; however its substrate and mechanism of action in this process remained unknown. Here, we show that Ubp10 targets H2B for deubiquitylation both in vivo and in vitro and helps to localize the silencing protein Sir2 to the silent telomere. Ubp10 is preferentially localized proximal to telomeres and serves to maintain low H2B ubiquitylation and low H3 K4 and K79 methylation in this region. We propose a model in which Ubp10 actively keeps silenced telomeres free of ubiquitylated histones, and thus free of H3 K4 and K79 methylation, thereby enabling the silencing SIR protein complex binding which facilitates proper silencing. In the absence of Ubp10 activity, unprecedented ubiquitylation of normally silenced regions decrease SIR complex binding, resulting in decreased silencing. We also compare Ubp10 to Ubp8 and show that telomeric and gene-silencing functions are specific to Ubp10, suggesting that these H2B deubiquitylating enzymes have distinct genomic functions.