As a ubiquitin-like modifier, ISG15 is conjugated to many cellular proteins in a process termed protein ISGylation. However, the crosstalk between protein ISGylation and the ubiquitin proteasome system is not fully understood. Here, we report that cellular ubiquitin is a substrate of ISG15 and Lys 29 on ubiquitin is the major ISG15 acceptor site. Using a model substrate, we demonstrate that ISG15 can modify ubiquitin, which is immobilized on its substrate, to form ISG15-ubiquitin mixed chains. Furthermore, our results indicate that ISG15-ubiquitin mixed chains do not serve as degradation signals for a ubiquitin fusion degradation substrate. Accordingly, an ISG15-ubiquitin fusion protein, which mimics an ISG15-ubiquitin mixed chain, negatively regulates cellular turnover of ubiquitylated proteins. In addition, ISG15-ubiquitin mixed chains, which are detectable on endogenously ubiquitylated proteins, dampen cellular turnover of these proteins. Thus, our studies unveil an unanticipated interplay between two protein modification systems and highlight its role in coordinating protein homeostasis.