The Fanconi anemia (FA)-BRCA pathway is critical for the repair of DNA interstrand crosslinks (ICLs) and the maintenance of chromosome stability. A key step in FA-BRCA pathway activation is the covalent attachment of monoubiquitin to FANCD2 and FANCI. Monoubiquitinated FANCD2 and FANCI localize in chromatin-associated nuclear foci where they interact with several well-characterized DNA repair proteins. Importantly, very little is known about the structure, function, and regulation of FANCD2. Herein, we describe the identification and characterization of a CUE (coupling of ubiquitin conjugation to endoplasmic reticulum degradation) ubiquitin-binding domain (UBD) in FANCD2, and demonstrate that the CUE domain mediates noncovalent binding to ubiquitin in vitro. We show that although mutation of the CUE domain destabilizes FANCD2, the protein remains competent for DNA damage-inducible monoubiquitination and phosphorylation. Importantly, we demonstrate that the CUE domain is required for interaction with FANCI, retention of monoubiquitinated FANCD2, and FANCI in chromatin, and for efficient ICL repair. Our results suggest a model by which heterodimerization of monoubiquitinated FANCD2 and FANCI in chromatin is mediated in part through a noncovalent interaction between the FANCD2 CUE domain and monoubiquitin covalently attached to FANCI, and that this interaction shields monoubiquitinated FANCD2 from polyubiquitination and proteasomal degradation.