The induction of apoptosis upon USP7 (HAUSP) inhibition is established in cancers that contain a wild-type p53 (p53Wt) through the USP7-Mdm2-p53 axis, but no clear explanation has yet been reported for the same to occur in cancers containing mutant 53 (p53Mut) or even p53 null (p53Null) systems. Instead of this USP7-Mdm2-p53 axis USP7 also works through an alternative new pathway identified in this study. Here in this study, we observed that the magnitude of apoptosis induction in response to USP7 inhibition was remarkably similar between cancer cells showing p53Null or p53Mut and those with p53Wt. Through a proteomics-based approach, we were able to identify XIAP as a novel interacting partner for USP7. XIAP is a potent and well-characterized member of the inhibitor of apoptosis proteins (IAPs), which function through caspase inhibition. We successfully identified USP7 as a positive regulator of XIAP at post-translational but not at its transcriptional level. Using molecular modelling coupled with domain deletion studies, we show that the first three Ubl domains in association with the catalytic domain of USP7 interact with the BIR2 and the linker region between BIR2 and BIR3 domains of XIAP. Modulation of expression and catalytic activity of USP7 in multiple type of cancer cell lines showed that USP7 stabilizes XIAP through its deubiquitinase activity. We have also observed that USP7 sensitizes cells against chemotherapeutic drugs through stabilization of XIAP. Thus, USP7 promotes tumorigenesis in multiple cancers, via stabilization of XIAP that results in apoptosis inhibition in caspase dependent pathway. Moreover, we observed that combinatorial inhibition of USP7 and XIAP can induce cellular apoptosis in a higher magnitude than their individual inhibition. Additionally, our results indicates that nanoformulated P5091 and P22077 showed higher potency for killing C6 cells in comparison to normal drugs. To the best of our knowledge, this is the first report on identification and validation of XIAP, a crucial E3 ubiquitin ligase, as a novel substrate of the deubiquitinase USP7 and they together involve in empowerment of the tumorigenic potential of cancer cells.