Protein modification by ubiquitin is a dynamic and reversible process that is involved in the regulation of a variety of cellular processes. Here, we show that myogenic differentiation of embryonic muscle cells is antagonistically regulated by two deubiquitinating enzymes, UBP45 and UBP69, that are generated by alternative splicing. Both enzymes cleaved off ubiquitin from polyubiquitinated protein conjugates in vivo as well as from linear ubiquitin–protein fusions in vitro. In cultured myoblasts, the level of UBP69 mRNA markedly but transiently increased before membrane fusion, whereas that of UBP45 mRNA increased as the cells fused to form myotubes. Both myoblast fusion and accumulation of myosin heavy chain were dramatically stimulated by the stable expression of UBP69 but strongly attenuated by that of the catalytically inactive form of the protease, suggesting that the mutant enzyme acts dominant negatively on the function of the wild-type protease. In contrast, stable expression of UBP45 completely blocked both of the myogenic processes but that of inactive enzyme did not, indicating that the catalytic activity of the enzyme is essential for its inhibitory effects. These results indicate that differential expression of UBP45 and UBP69 is involved in the regulation of muscle cell differentiation.