The Spt–Ada–Gcn5–acetyltransferase (SAGA) chromatin-modifying complex is a highly conserved 2-MDa protein complex comprised of ∼20 subunits (Helmlinger et al. 2004; Lee and Workman 2007; Weake and Workman 2012). The complex is arranged in a modular fashion and contains two enzymatic activities: an acetyltransferase activity associated with the GCN5/Pcaf subunit and a deubiquitinase activity associated with the yUbp8/dNon-stop/hUsp22 subunit (Lee et al. 2011). In yeast, the ataxin-7 homolog is Sgf73, and studies have shown that it anchors the deubiquitinase module (which includes Sgf73, Sgf11, Sus1, and Ubp8) to the SAGA complex (Lee et al. 2009, 2011; Weake and Workman 2012). Crystal structures and biochemical analysis of the yeast deubiquitinase module have shown that the N terminus of Sgf73 extends deep into the deubiquitinase module, intertwining between the components of the module to ensure an active conformation for the deubiquitinase. Without Sgf73, the deubiquitinase is inactive (Kohler et al. 2010; Samara et al. 2010). The carefully orchestrated addition and removal of ubiquitin on H2B are important regulators of transcription. H2B monoubiquitination is a prerequisite for di- and trimethylation of H3K4 and H3K79, modifications associated with transcriptionally active chromatin (Lee et al. 2007). Here, we identify the gene product of CG9866 as the Drosophila homolog of ataxin-7 (Ataxin-7). Biochemical analysis, including affinity purification, multidimensional protein identification technology (MudPIT) proteomic analysis, and gel filtration chromatography, establish that Ataxin-7 is a stable component of the SAGA chromatin remodeling complex. Analysis of SAGA from Ataxin-7-deficient flies revealed the loss of components from the SAGA complex, consistent with a role for Ataxin-7 in anchoring the deubiquitinase module to the complex. In contrast to the increased H2Bub observed upon loss of ataxin-7 in yeast, we observed a decrease in H2B ubiquitination in Drosophila with no associated changes in histone methylation and a reduction in the levels of H3K9 acetylation but not K3K14 acetylation. This surprising change in H2B ubiquitination was confirmed in human cells in which knockdown of human Ataxin-7 also resulted in decreased H2B ubiquitination. We hypothesize that this decrease reflects the release of an active deubiquitinase module from SAGA and, consequently, loss of SAGA-associated regulation of the deubiquitinase activity. Consistent with this model, we found that the deubiquitinase is enzymatically active when the complex is reconstituted in vitro even in the absence of Ataxin-7. An examination of flies with reduced expression of Ataxin-7 showed that loss of Ataxin-7 results in neural and retinal degeneration, impaired movement, and decreased life span.