Type I interferon (IFN) signalling induces the expression of several hundred IFN-stimulated genes (ISGs) that provide an unfavourable environment for viral replication. To prevent an overexuberant response and autoinflammatory disease, IFN signalling requires tight control. One critical regulator is the ubiquitin-like protein IFN-stimulated gene 15 (ISG15), evidenced by autoinflammatory disease in patients with inherited ISG15 deficiencies. Current models suggest that ISG15 stabilises ubiquitin-specific peptidase 18 (USP18), a well-established negative regulator of IFN signalling. USP18 also functions as an ISG15-specific peptidase that cleaves ISG15 from ISGylated proteins; however, USP18's catalytic activity is dispensable for controlling IFN signalling. Here, we show that the ISG15-dependent stabilisation of USP18 involves hydrophobic interactions reliant on tryptophan 123 (W123) in ISG15. Nonetheless, while USP18 stabilisation is necessary, it is not sufficient for the regulation of IFN signalling; ISG15 C-terminal mutants with significantly reduced affinity still stabilised USP18, yet the magnitude of signalling resembled ISG15-deficient cells. Hence, USP18 requires non-covalent interactions with the ISG15 C-terminal diGlycine motif to promote its regulatory function. It shows ISG15 is a repressor of type I IFN signalling beyond its role as a USP18 stabiliser.