Thiols such as dithiothreitol (DTT) are known to allow recycling of the ubiquitin activating enzyme presumably due to attack by thiol on E-ubiquitin forming E + DTT-ubiquitin. It is now reported that the resulting ubiquitin thiol ester is extremely susceptible to hydrolysis, giving rise to free ubiquitin that can then also recycle in the activating enzyme reaction. The instability of ubiquitin thiol esters in this system is caused by a ubiquitin carboxy-terminal thiolesterase activity found as a minor contaminant of the activating enzyme. This activity of rabbit reticulocytes has been extensively purified, and some of its properties are reported. The enzyme, which also cleaves carboxy-terminal adenosine 5'-phosphate-ubiquitin, is inhibited by free ubiquitin at micromolar concentrations. The ubiquitin-specific esterase probably functions to hydrolyze glutathione and other thiol esters of ubiquitin that would be formed spontaneously from activated ubiquitin in cells.