Ubiquitination and the reverse process deubiquitination regulate protein stability and function during animal development. The Drosophila USP5 homolog Leon functions as other family members of unconventional deubiquitinases, disassembling free, substrate-unconjugated polyubiquitin chains to replenish the pool of mono-ubiquitin, and maintaining cellular ubiquitin homeostasis. However, the significance of Leon/USP5 in animal development is still unexplored. In this study, we generated leon mutants to show that Leon is essential for animal viability and tissue integrity during development. Both free and substrate-conjugated polyubiquitin chains accumulate in leon mutants, suggesting that abnormal ubiquitin homeostasis caused tissue disorder and lethality in leon mutants. Further analysis of protein expression profiles in leon mutants shows that the levels of all proteasomal subunits were elevated. Also, proteasomal enzymatic activities were elevated in leon mutants. However, proteasomal degradation of ubiquitinated substrates was impaired. Thus, aberrant ubiquitin homeostasis in leon mutants disrupts normal proteasomal degradation, which is compensated by elevating the levels of proteasomal subunits and activities. Ultimately, the failure to fully compensate the dysfunctional proteasome in leon mutants leads to animal lethality and tissue disorder.