During DNA replication, the deubiquitinating enzyme USP1 limits the recruitment of translesion polymerases by removing ubiquitin marks from PCNA to allow specific regulation of the translesion synthesis (TLS) pathway. USP1 activity depends on an allosteric activator, UAF1, and this is tightly controlled. In comparison to paralogs USP12 and USP46, USP1 contains three defined inserts and lacks the second WDR20-mediated activation step. Here we show how inserts L1 and L3 together limit intrinsic USP1 activity and how this is relieved by UAF1. Intriguingly, insert L1 also conveys substrate-dependent increase in USP1 activity through DNA and PCNA interactions, in a process that is independent of UAF1-mediated activation. This study establishes insert L1 as an important regulatory hub within USP1 necessary for both substrate-mediated activity enhancement and allosteric activation upon UAF1 binding.