The mechanistic target of rapamycin (mTOR) has a key role in the integration of various physiological stimuli to regulate several cell growth and metabolic pathways. mTOR primarily functions as a catalytic subunit in two structurally related but functionally distinct multi-component kinase complexes, mTOR complex 1 (mTORC1) and mTORC2 (refs 1, 2). Dysregulation of mTOR signalling is associated with a variety of human diseases, including metabolic disorders and cancer. Thus, both mTORC1 and mTORC2 kinase activity is tightly controlled in cells. mTORC1 is activated by both nutrients and growth factors, whereas mTORC2 responds primarily to extracellular cues such as growth-factor-triggered activation of PI3K signalling. Although both mTOR and GβL (also known as MLST8) assemble into mTORC1 and mTORC2 (refs 11, 12, 13, 14, 15), it remains largely unclear what drives the dynamic assembly of these two functionally distinct complexes. Here we show, in humans and mice, that the K63-linked polyubiquitination status of GβL dictates the homeostasis of mTORC2 formation and activation. Mechanistically, the TRAF2 E3 ubiquitin ligase promotes K63-linked polyubiquitination of GβL, which disrupts its interaction with the unique mTORC2 component SIN1 (refs 12, 13, 14) to favour mTORC1 formation. By contrast, the OTUD7B deubiquitinase removes polyubiquitin chains from GβL to promote GβL interaction with SIN1, facilitating mTORC2 formation in response to various growth signals. Moreover, loss of critical ubiquitination residues in GβL, by either K305R/K313R mutations or a melanoma-associated GβL(ΔW297) truncation, leads to elevated mTORC2 formation, which facilitates tumorigenesis, in part by activating AKT oncogenic signalling. In support of a physiologically pivotal role for OTUD7B in the activation of mTORC2/AKT signalling, genetic deletion of Otud7b in mice suppresses Akt activation and Kras-driven lung tumorigenesis in vivo. Collectively, our study reveals a GβL-ubiquitination-dependent switch that fine-tunes the dynamic organization and activation of the mTORC2 kinase under both physiological and pathological conditions.