Protein ubiquitylation plays a central role in multiple signal transduction pathways. However, the substrate specificity and potential developmental roles of deubiquitylating enzymes remain poorly understood. Here, we show that the Drosophila ubiquitin protease UBP64 controls cell fate in the developing eye. UBP64 represses neuronal cell fate but promotes the formation of nonneuronal cone cells. Using a proteomics approach, we identified the transcriptional repressor Tramtrack (TTK) as a primary UBP64 substrate. In common with TTK, reduced UBP64 levels lead to a loss of cone cells, supernumerary photoreceptors, and mechanosensory bristle cells. Previously, it was demonstrated that the blockade of neuronal cell fate was relieved by SINA-dependent ubiquitylation and degradation of TTK. We found that UBP64 counteracts SINA function by deubiquitylating TTK, leading to its stabilization and thereby promoting a nonneuronal cell fate. Mass spectrometric mapping revealed that SINA ubiquitylates multiple sites dispersed throughout TTK, which are duly deubiquitylated by UBP64. This observation suggests that both E3 SINA and UBP64 use a scanning mechanism to (de)ubiquitylate TTK. We conclude that the balance of TTK ubiquitylation by SINA and deubiquitylation by UBP64 constitutes a specific posttranslational switch controlling cell fate.