USP7, one of the most abundant ubiquitin-specific proteases (USP), plays multifaceted roles in many cellular events, including oncogenic pathways. Accumulated studies have suggested that USP7, through modulating the MDM2/MDMX-p53 pathway, is a promising target for cancer treatment; however, little is known about the function of USP7 in p53-deficient tumors. Here we report that USP7 regulates the autoregulation of SMAD3, a key regulator of transforming growth factor β (TGFβ) signaling, that represses the cell progression of p53-deficient lung cancer. CRISPR/Cas9-mediated inactivation of USP7 in p53-deficient lung cancer H1299 line resulted in advanced cell proliferation in vitro and in xenograft tumor in vivo. Genome-wide analyses (ChIP-seq and RNA-seq) of USP7 KO H1299 cells reveal a dramatic reduction of SMAD3 autoregulation, including decreased gene expression and blunted function of associated super-enhancer (SE). Furthermore, biochemical assays show that SMAD3 is conjugated by mono-ubiquitin, which negatively regulates the DNA-binding function of SMAD3, in USP7 KO cells. In addition, cell-free and cell-based analyses further demonstrate that the deubiquitinase activity of USP7 mediates the removal of mono-ubiquitin from SMAD3 and facilitates the DNA-binding of SMAD3-SMAD4 dimer at SMAD3 locus, and thus enhance the autoregulation of SMAD3. Collectively, our study identified a novel mechanism by which USP7, through catalyzing the SMAD3 de-monoubiquitination, facilitates the positive autoregulation of SMAD3, and represses the cancer progression of p53-deficient lung cancer.