The active ubiquitin E3 ligase GRAIL is crucial in the induction of CD4 T cell anergy. Here we show that GRAIL is associated with and regulated by two isoforms of the ubiquitin-specific protease otubain 1. In lethally irradiated mice reconstituted with bone marrow cells from T cell receptor-transgenic mice retrovirally transduced to express the genes encoding these proteases, otubain 1-expressing cells contained negligible amounts of endogenous GRAIL, proliferated well and produced large amounts of interleukin 2 after antigenic stimulation. In contrast, cells expressing the alternatively spliced isoform, otubain 1 alternative reading frame 1, contained large amounts of endogenous GRAIL and were functionally anergic, and they proliferated poorly and produced undetectable interleukin 2 when stimulated in a similar way. Thus, these two proteins have opposing epistatic functions in controlling the stability of GRAIL expression and the resultant anergy phenotype in T cells.