A conserved transcriptional feedback loop underlies animal circadian rhythms. In Drosophila, the transcription factors CLOCK (CLK) and CYCLE (CYC) activate the transcription of direct target genes like period (per) and timeless (tim). They encode the proteins PER and TIM, respectively, which repress CLK/CYC activity. Previous work indicates that repression is due to a direct PER–CLK/CYC interaction as well as CLK/CYC phosphorylation. We describe here the role of ubiquitin-specific protease 8 (USP8) in circadian transcriptional repression as well as the importance of CLK ubiquitylation in CLK/CYC transcription activity. usp8 loss of function (RNAi) or expression of a dominant-negative form of the protein (USP8-DN) enhances CLK/CYC transcriptional activity and alters fly locomotor activity rhythms. Clock protein and mRNA molecular oscillations are virtually absent within circadian neurons of USP8-DN flies. Furthermore, CLK ubiquitylation cycles robustly in wild-type flies and peaks coincident with maximal CLK/CYC transcription. As USP8 interacts with CLK and expression of USP8-DN increases CLK ubiquitylation, the data indicate that USP8 deubiquitylates CLK, which down-regulates CLK/CYC transcriptional activity. Taken together with the facts that usp8 mRNA cycles and that its transcription is activated directly by CLK/CYC, USP8, like PER and TIM, contributes to the transcriptional feedback loop cycle that underlies circadian rhythms.