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Protein ubiquitination plays a critical role in Toll-like receptor (TLR) signaling and innate immunity. Although several E3 ubiquitin ligases have been identified downstream of TLRs, the regulation of protein deubiquitination in TLR-triggered innate immune responses is poorly understood. We identified ubiquitin-specific protease 25 (USP25) as a regulator of TLR signaling. USP25 was recruited to the TLR4 signaling complex, and it associated with the adaptor proteins tumor necrosis factor receptor–associated factor 3 (TRAF3) and TRAF6 after stimulation of TLR4 with its ligand lipopolysaccharide (LPS). USP25 specifically reversed the Lys48-linked ubiquitination of TRAF3 that was mediated by the E3 ubiquitin ligase cIAP2 (cellular inhibitor of apoptosis 2). Deficiency in USP25 enhanced the extent of ubiquitination of TRAF3 and accelerated its degradation after TLR4 activation, which potentiated TLR4-induced activation of NF-κB (nuclear factor κB) and MAPK (mitogen-activated protein kinase) signaling, but inhibited activation of the transcription factor IRF3 (interferon regulatory factor 3). USP25-deficient mice exhibited increased susceptibility to LPS-induced septic shock compared to their wild-type counterparts, which was associated with enhanced production of proinflammatory cytokines and decreased production of interferon-α. Thus, by inhibiting the degradation of TRAF3 during TLR4 activation, USP25 enables a balanced innate immune response.