Using PCR-coupled subtractive screening-representational difference analysis, we have cloned a novel gene from AML1-ETO knockin mice. This gene is highly expressed in the yolk sac and fetal liver of the knockin mice. Nucleotide sequence analysis indicates that its cDNA contains an 1,107-bp open reading frame encoding a 368-amino-acid polypeptide. Further protein sequence and protein translation analysis shows that it belongs to a family of ubiquitin-specific proteases (UBP), and its molecular mass is 43 kDa. Therefore, we have named this gene UBP43. Like other ubiquitin proteases, the UBP43 protein has deubiquitinating enzyme activity. Protein ubiquitination has been implicated in many important cellular events. In wild-type adult mice, UBP43 is highly expressed in the thymus and in peritoneal macrophages. Among nine different murine hematopoietic cell lines analyzed, UBP43 expression is detectable only in cell lines related to the monocytic lineage. Furthermore, its expression is regulated during cytokine-induced monocytic cell differentiation. We have investigated its function in the hematopoietic myeloid cell line M1. UBP43 was introduced into M1 cells by retroviral gene transfer, and several high-expressing UBP43 clones were obtained for further study. Morphologic and cell surface marker examination of UBP43/M1 cells reveals that overexpression of UBP43 blocks cytokine-induced terminal differentiation of monocytic cells. These data suggest that UBP43 plays an important role in hematopoiesis by modulating either the ubiquitin-dependent proteolytic pathway or the ubiquitination state of another regulatory factor(s) during myeloid cell differentiation.