Ubiquitin-specific processing proteases (UBPs) presently form the largest enzyme family in the ubiquitin system, characterized by a core region containing conserved motifs surrounded by divergent sequences, most commonly at the N-terminal end. The functions of these divergent sequences remain unclear. We identified two isoforms of a novel testis-specific UBP, UBP-t1 and UBP-t2, which contain identical core regions but distinct N termini, thereby permitting dissection of the functions of these two regions. Both isoforms were germ cell specific and developmentally regulated. Immunocytochemistry revealed that UBP-t1 was induced in step 16 to 19 spermatids while UBP-t2 was expressed in step 18 to 19 spermatids. Immunoelectron microscopy showed that UBP-t1 was found in the nucleus while UBP-t2 was extranuclear and was found in residual bodies. For the first time, we show that the differential subcellular localization was due to the distinct N-terminal sequences. When transfected into COS-7 cells, the core region was expressed throughout the cell but the UBP-t1 and UBP-t2 isoforms were concentrated in the nucleus and the perinuclear region, respectively. Fusions of each N-terminal end with green fluorescent protein yielded the same subcellular localization as the native proteins, indicating that the N-terminal ends were sufficient for determining differential localization. Interestingly, UBP-t2 colocalized with anti-γ-tubulin immunoreactivity, indicating that like several other components of the ubiquitin system, a deubiquitinating enzyme is associated with the centrosome. Regulated expression and alternative N termini can confer specificity of UBP function by restricting its temporal and spatial loci of action.