Transforming growth factor β-1 (TGFβ-1)-induced phosphorylation of transcription factors Smad2 and Smad3 plays a crucial role in the pathogenesis of idiopathic pulmonary fibrosis (IPF). However, the molecular regulation of Smad2/Smad3 proteins stability remains a mystery. Here, we show that ubiquitin carboxyl-terminal hydrolase-L5 (UCHL5 or UCH37) de-ubiquitinates both Smad2 and Smad3, up-regulates their stability, and promotes TGFβ-1-induced expression of profibrotic proteins, such as fibronectin (FN) and α-smooth muscle actin (α-SMA). Inhibition or down-regulation of UCHL5 reduced Smad2/Smad3 levels and TGFβ-1-induced the expression of FN and α-SMA in human lung fibroblast. We demonstrate that Smad2 and Smad3 ubiquitination was diminished by over-expression of UCHL5, while it was enhanced by inhibition or down-regulation of UCHL5. UCHL5 is highly expressed in IPF lungs. UCHL5, Smad2, and Smad3 levels were increased in bleomycin-injured lungs. Administration of UCHL5 inhibitor, b-AP15, reduced the expression of FN, type I collagen, Smad2/Smad3, and the deposition of collagen in lung tissues in a bleomycin-induced model of pulmonary fibrosis. Our studies provide a molecular mechanism by which UCHL5 mitigates TGFβ-1 signaling by stabilizing Smad2/Smad3. These data indicate that UCHL5 may contribute to the pathogenesis of IPF and may be a potential therapeutic target.