SMAD transcription factors are key intracellular transducers of TGFbeta cytokines. SMADs are tightly regulated to ensure balanced cellular responses to TGFbeta signals. Ubiquitylation has a key role in regulating SMAD stability and activity. Several E3 ubiquitin ligases that regulate the turnover of SMADs are known; however, proteins that prevent the ubiquitylation or cause deubiquitylation of active SMADs remain undefined. Here we demonstrate that OTUB1 is recruited to the active phospho-SMAD2/3 complex only on TGFbeta induction. Further, OTUB1 has a crucial role in TGFbeta-mediated gene transcription and cellular migration. OTUB1 inhibits the ubiquitylation of phospho-SMAD2/3 by binding to and inhibiting the E2 ubiquitin-conjugating enzymes independent of its catalytic activity. Consequently, depletion of OTUB1 in cells causes a rapid loss in levels of TGFbeta-induced phospho-SMAD2/3, which is rescued by the proteasomal inhibitor bortezomib. Our findings uncover a signal-induced phosphorylation-dependent recruitment of OTUB1 to its target in the TGFbeta pathway.