AMSH, a conserved zinc metallo deubiquitinase, controls downregulation and degradation of cell-surface receptors mediated by the endosomal sorting complexes required for transport (ESCRT) machinery. It displays high specificity toward the Lys63-linked polyubiquitin chain, which is used as a signal for ESCRT-mediated endosomal-lysosomal sorting of receptors. Herein, we report the crystal structures of the catalytic domain of AMSH orthologue Sst2 from fission yeast, its ubiquitin (product)-bound form, and its Lys63-linked diubiquitin (substrate)-bound form at 1.45, 1.7, and 2.3 Å, respectively. The structures reveal that the P-side product fragment maintains nearly all the contacts with the enzyme as seen with the P portion (distal ubiquitin) of the Lys63-linked diubiquitin substrate, with additional coordination of the Gly76 carboxylate group of the product with the active-site Zn(2+). One of the product-bound structures described herein is the result of an attempt to cocrystallize the diubiquitin substrate bound to an active site mutant presumed to render the enzyme inactive, instead yielding a cocrystal structure of the enzyme bound to the P-side ubiquitin fragment of the substrate (distal ubiquitin). This fragment was generated in situ from the residual activity of the mutant enzyme. In this structure, the catalytic water is seen placed between the active-site Zn(2+) and the carboxylate group of Gly76 of ubiquitin, providing what appears to be a snapshot of the active site when the product is about to depart. Comparison of this structure with that of the substrate-bound form suggests the importance of dynamics of a flexible flap near the active site in catalysis. The crystal structure of the Thr319Ile mutant of the catalytic domain of Sst2 provides insight into structural basis of microcephaly capillary malformation syndrome. Isothermal titration calorimetry yields a dissociation constant (KD) of 10.2 ± 0.6 μM for the binding of ubiquitin to the enzyme, a value comparable to the KM of the enzyme catalyzing hydrolysis of the Lys63-linked diubiquitin substrate (~20 μM). These results, together with the previously reported observation that the intracellular concentration of free ubiquitin (~20 μM) exceeds that of Lys63-linked polyubiquitin chains, imply that the free, cytosolic form of the enzyme remains inhibited by being tightly bound to free ubiquitin. We propose that when AMSH associates with endosomes, inhibition would be relieved because of ubiquitin binding domains present on its endosomal binding partners that would shift the balance toward better recognition of polyubiquitin chains via the avidity effect.