Protein ubiquitination is critical for numerous cellular functions, including DNA damage response pathways. Histones are the most abundant monoubiquitin conjugates in mammalian cells; however, the regulation and the function of monoubiquitinated H2A (uH2A) and H2B (uH2B) remain poorly understood. In particular, little is known about mammalian deubiquitinating enzymes (DUBs) that catalyze the removal of ubiquitin from uH2A/uH2B. Here we identify the ubiquitin-specific protease 3 USP3 as a deubiquitinating enzyme for uH2A and uH2B. USP3 dynamically associates with chromatin and deubiquitinates H2A/H2B in vivo. The ZnF-UBP domain of USP3 mediates uH2A-USP3 interaction. Functional ablation of USP3 by RNAi leads to delay of S phase progression and to accumulation of DNA breaks, with ensuing activation of DNA damage checkpoint pathways. In addition, we show that in response to ionizing radiation, (1) uH2A redistributes and colocalizes in gamma-H2AX DNA repair foci and (2) USP3 is required for full deubiquitination of ubiquitin-conjugates/uH2A and gamma-H2AX dephosphorylation. Our studies identify USP3 as a novel regulator of H2A and H2B ubiquitination, highlight its role in preventing replication stress, and suggest its involvement in the response to DNA double-strand breaks. Together, our results implicate USP3 as a novel chromatin modifier in the maintenance of genome integrity.