Ubiquitin C-terminal hydrolases (UCHs) comprise a family of small ubiquitin-specific proteases of uncertain function. Although no cellular substrates have been identified for UCHs, their highly tissue-specific expression patterns and the association of UCH-L1 mutations with human disease strongly suggest a critical role. The structure of the yeast UCH Yuh1-ubiquitin aldehyde complex identified an active site crossover loop predicted to limit the size of suitable substrates. We report the 1.45 A resolution crystal structure of human UCH-L3 in complex with the inhibitor ubiquitin vinylmethylester, an inhibitor that forms a covalent adduct with the active site cysteine of ubiquitin-specific proteases. This structure confirms the predicted mechanism of the inhibitor and allows the direct comparison of a UCH family enzyme in the free and ligand-bound state. We also show the efficient hydrolysis by human UCH-L3 of a 13-residue peptide in isopeptide linkage with ubiquitin, consistent with considerable flexibility in UCH substrate size. We propose a model for the catalytic cycle of UCH family members which accounts for the hydrolysis of larger ubiquitin conjugates.