The endosomal system is a highly dynamic multifunctional organelle, whose complexity is regulated in part by reversible ubiquitylation. Despite the wide-ranging influence of ubiquitin in endosomal processes, relatively few enzymes utilizing ubiquitin have been described to control endosome integrity and function. Here we reveal the deubiquitylating enzyme (DUB) ubiquitin-specific protease 32 (USP32) as a powerful player in this context. Loss of USP32 inhibits late endosome (LE) transport and recycling of LE cargos, resulting in dispersion and swelling of the late compartment. Using SILAC-based ubiquitome profiling we identify the small GTPase Rab7-the logistical centerpiece of LE biology-as a substrate of USP32. Mechanistic studies reveal that LE transport effector RILP prefers ubiquitylation-deficient Rab7, while retromer-mediated LE recycling benefits from an intact cycle of Rab7 ubiquity-lation. Collectively, our observations suggest that reversible ubiquitylation helps switch Rab7 between its various functions, thereby maintaining global spatiotemporal order in the endosomal system.