Previous models for the role of histone modifications suggest that adding and removing modifications, such as acetylation/deacetylation in gene regulation, are functionally antagonistic. We have investigated a transcriptional role of H2B C-terminal ubiquitylation and de-ubiquitylation in Saccharomyces cerevisiae. H2B ubiquitylation is required for optimal transcription of SUC2 and GAL1 genes. The ubiquitin hydrolase Ubp8 is a stable component of SAGA but not ADA complexes, and is not required for overall integrity of SAGA. Biochemical and genetic evidence indicates that Ubp8 targets H2B for deubiquitylation. The dynamic balance of H2B ubiquitylation/deubiquitylation is important for GAL1 transcription since either substitution of the ubiquitylation site in H2B (Lys123), or loss of Ubp8, lowers GAL1 expression. Further, this balance of ubiquitylation appears to set the balance of histone H3 methylation at Lys4 relative to Lys36. Thus, unlike acetylation/deacetylation whose functions are mutually opposing, both ubiquitylation and de-ubiquitylation are required for gene activation. These results suggest that ubiquitylation of histones has a unique role among histone modifications, possibly to orchestrate an ordered pathway of chromatin alterations.