Background Ubiquitin-specific peptidase 7 (USP7) is a deubiquitinating enzyme that removes ubiquitin from specific protein substrates to modify their degradation rates thereby regulating crucial cellular processes integral to cancer. Conspicuously, overexpression of USP7 is strongly associated with the progression and poor prognosis in various cancers. Therefore, the design of potent and selective USP7 inhibitors poses an attractive therapeutic approach. The mechanism of action of USP7 inhibitors in cancer cells relies on MDM2 depletion and the restoration of p53. Methods In this study, we present OAT-4828, a novel and highly potent USP7-selective lead compound with a pharmacokinetic profile suitable for an oral administration. In in vivo models of melanoma and colon cancers, we determine the antitumor activity of OAT-4828, revealing its significant influence on various immune cell populations by flow cytometry. Results We provide evidence that OAT-4828 alters the tumor microenvironment, affecting immune cells including T cells, macrophages, and dendritic cells. As a result, OAT-4828 enhances antitumor functions, specifically improves T-cell activity, manifested by increased cytotoxicity, which is crucial for the effectiveness of OAT-4828 in vivo. Moreover, OAT-4828 changes the phenotype of macrophages and dendritic cells by decreasing the level of immunosuppressive proteins, such as programmed death-ligand 1. Translational results from the human co-culture system revealed the unexpected anti-angiogenic effect of the USP7 inhibitor, which was not observed when compared with an MDM2 inhibitor. Conclusions Overall, OAT-4828 demonstrates significant anticancer efficacy in melanoma and colon cancer models by activating the immune system, suggesting that USP7 may function as a checkpoint contributing to immunosuppression in cancer.