The endosomal system is a highly dynamic multifunctional organelle, whose complexity is regulated in part by reversible ubiquitylation. Despite the wide-ranging influence of ubiquitin in endosomal processes, relatively few enzymes utilizing ubiquitin have been described to control endosome integrity and function. Here we reveal the deubiquitylating enzyme (DUB) ubiquitin-specific protease 32 (USP32) as a powerful player in this context. Loss of USP32 inhibits late endosome (LE) transport and recycling of LE cargos, resulting in dispersion and swelling of the late compartment. Using SILAC-based ubiquitome profiling we identify the small GTPase Rab7—the logistical centerpiece of LE biology—as a substrate of USP32. Mechanistic studies reveal that LE transport effector RILP prefers ubiquitylation-deficient Rab7, while retromer-mediated LE recycling benefits from an intact cycle of Rab7 ubiquitylation. Collectively, our observations suggest that reversible ubiquitylation helps switch Rab7 between its various functions, thereby maintaining global spatiotemporal order in the endosomal system.