The "class E" vacuolar protein sorting (VPS) pathway mediates sorting of ubiquitinated cargo into the forming vesicles of the multivesicular bodies (MVB), and it is essential for down-regulation of signaling by growth factors and budding of enveloped viruses such as Ebola and HIV-1. Work in yeast has identified DOA4 as a gene that is recruited by the class E machinery to remove ubiquitin from the endosomal cargo before it is incorporated into MVB vesicles, but the identity of the mammalian counterpart is unclear. Here we report the interaction of AMSH (associated molecule with the SH3 domain of STAM), an endosomal deubiquitinating enzyme, with the endodomal sorting complex required for transport (ESCRT-III) subunits CHMP1A, CHMP1B, CHMP2A, and CHMP3. We also show that a catalytically inactive AMSH inhibits retroviral budding in a dominant-negative manner and induces the accumulation of ubiquitinated forms of an endosomal cargo, namely murine leukemia virus Gag. Finally, VPS4 and AMSH compete for binding to the C-terminal regions of CHMP1A and CHMP1B, revealing a coordinated interaction with ESCRT-III. Taken together, these results are consistent with a role of AMSH in the deubiquitination of the endosomal cargo preceding lysosomal degradation.