The dynamic and reversible process of ubiquitin modification controls various cellular activities. Ubiquitin exists as monomers, unanchored chains, or protein-conjugated forms, but the regulation of these interconversions remains largely unknown. Here, we identified a protein designated Rfu1 (regulator of free ubiquitin chains 1), which regulates intracellular concentrations of monomeric ubiquitins and free ubiquitin chains in Saccharomyces cerevisiae. Rfu1 functions as an inhibitor of Doa4, a deubiquitinating enzyme. Rapid loss of free ubiquitin chains upon heat shock, a condition in which more proteins require ubiquitin conjugation, was mediated in part by Doa4 and Rfu1. Thus, regulation of ubiquitin homeostasis is controlled by a balance between a deubiquitinating enzyme and its inhibitor. We propose that free ubiquitin chains function as a ubiquitin reservoir that allows maintenance of monomeric ubiquitins at adequate levels under normal conditions and rapid supply for substrate conjugation under stress conditions.