Tumor suppressor CYLD is a deubiquitinating enzyme (DUB) that inhibits the ubiquitination of key signaling molecules, including tumor necrosis factor (TNF) receptor-associated factor 2 (TRAF2). However, how the function of CYLD is regulated remains unknown. Here we provide evidence that inducible phosphorylation of CYLD is an important mechanism of its regulation. Under normal conditions, CYLD dominantly suppresses the ubiquitination of TRAF2. In response to cellular stimuli, CYLD undergoes rapid and transient phosphorylation, which is required for signal-induced TRAF2 ubiquitination and activation of downstream signaling events. Interestingly, the CYLD phosphorylation requires IκB kinase gamma (IKKγ) and can be induced by IKK catalytic subunits. These findings suggest that CYLD serves as a novel target of IKK and that the site-specific phosphorylation of CYLD regulates its signaling function.