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Precise regulation of Type I interferon signaling is crucial for combating infection and cancer while avoiding autoimmunity. Type I interferon signaling is negatively regulated by USP18. USP18 cleaves ISG15, an interferon-induced ubiquitin-like modification, via its canonical catalytic function, and inhibits Type I interferon receptor activity through its scaffold role. USP18 loss-of-function dramatically impacts immune regulation, pathogen susceptibility, and tumor growth. However, prior studies have reached conflicting conclusions regarding the relative importance of catalytic versus scaffold function. Here, we develop biochemical and cellular methods to systematically define the physiological role of USP18. By comparing a patient-derived mutation impairing scaffold function (I60N) to a mutation disrupting catalytic activity (C64S), we demonstrate that scaffold function is critical for cancer cell vulnerability to Type I …