Covalent modification of histones is fundamental in orchestrating chromatin dynamics and transcription. One example of such an epigenetic mark is the mono-ubiquitination of histones, which mainly occurs at histone H2A and H2B. Ubiquitination of histone H2A has been implicated in polycomb-mediated transcriptional silencing. However, the precise role of the ubiquitin mark during silencing is still elusive. Here we show in human cell lines that ZRF1 (zuotin-related factor 1) is specifically recruited to histone H2A when it is ubiquitinated at Lys 119 by means of a novel ubiquitin-interacting domain that is located in the evolutionarily conserved zuotin domain. At the onset of differentiation, ZRF1 specifically displaces polycomb-repressive complex 1 (PRC1) from chromatin and facilitates transcriptional activation. A genome-wide mapping of ZRF1, RING1B and H2A-ubiquitin targets revealed its involvement in the regulation of a large set of polycomb target genes, emphasizing the key role ZRF1 has in cell fate decisions. We provide here a model of the molecular mechanism of switching polycomb-repressed genes to an active state.