Ubiquitin specific protease 4 (USP4) is a deubiquitinating enzyme with key roles in the regulation of p53 and TGFβ signaling, suggesting its importance in tumorigenesis. However, the mechanisms and regulatory roles of USP4 in cancer, including colorectal cancer, remain largely elusive. Here, we present the first evidence that USP4 regulates the growth, invasion, and metastasis of colorectal cancer. USP4 expression was significantly elevated in colorectal cancer tissues and was significantly associated with tumor size, differentiation, distant metastasis, and poor survival. Knockdown of USP4 diminished colorectal cancer cell growth, colony formation, migration, and invasion in vitro and metastasis in vivo. Importantly, we found that phosphatase of regenerating liver-3 (PRL-3) is indispensable for USP4-mediated oncogenic activity in colorectal cancer. Mechanistically, we observed that USP4 interacted with and stabilized PRL-3 via deubiquitination. This resulted in activation of Akt and reduction of E-cadherin, critical regulators of cancer cell growth and metastasis. Examination of clinical samples confirmed that USP4 expression positively correlates with PRL-3 protein expression, but not mRNA transcript levels. Taken together, our results demonstrate that aberrant expression of USP4 contributes to the development and progression of colorectal cancer and reveal a critical mechanism underlying USP4-mediated oncogenic activity. These observations suggest that the potential of harnessing proteolytic degradation processes for therapeutic manipulation may offer a much-needed new approach for improving colorectal cancer treatment strategies.