Abstract Background Anaplastic thyroid carcinoma (ATC) was a rare and extremely malignant endocrine cancer with the distinct hallmark of high proportion of cancer stem cell-like characteristics. Therapies aiming to cancer stem-like cells (CSCs) were emerging as a new direction in cancer treatment, but targeting ATC CSCs remained challenging, mainly due to incomplete insights of the regulatory mechanism of CSCs. Here, we unveiled a novel role of ISG15 in the modulation of ATC CSCs. Methods The expression of ubiquitin-like proteins were detected by bioinformatics and immunohistochemistry. The correlation between ISG15 expression and tumor stem cells and malignant progression of ATC was analyzed by single-cell RNA sequence from the Gene Expression Omnibus. Flow cytometry combined with immunofluorescence were used to verify the enrichment of ISG15 and ISGyaltion in cancer stem cells. The effect and mechanism of ISG15 and KPNA2 on cancer stem cell-like characteristics of ATC cells were determined by molecular biology experiments. Mass spectrometry combined with immunoprecipitation to screen the substrates of ISG15 and validate its ISGylation modification. Nude mice and zebrafish xenograft models were utilized to demonstrate that ISG15 regulates stem cell characteristics and promotes malignant progression of ATC. Results We found that among several ubiquitin proteins, only ISG15 was aberrantly expressed in ATC and enriched in CSCs. Single-cell sequencing analysis revealed that abnormal expression of ISG15 were intensely associated with stemness and malignant cells in ATC. Inhibition of ISG15 expression dramatically attenuated clone and sphere formation of ATC cells, and facilitated its sensitivity to doxorubicin. Notably, overexpression of ISGylation, but not the non-ISGylation mutant, effectively reinforced cancer stem cell-like characteristics. Mechanistically, ISG15 mediated the ISGylation of KPNA2 and impeded its ubiquitination to promote stability, further maintaining cancer stem cell-like characteristics. Finally, depletion of ISG15 inhibited ATC growth and metastasis in xenografted mouse and zebrafish models. Conclusion Our studies not only provided new insights into potential intervention strategies targeting ATC CSCs, but also uncovered the novel biological functions and mechanisms of ISG15 and ISGylation for maintaining ATC cancer stem cell-like characteristics. Graphical Abstract