Mammalian target of rapamycin (mTOR) is a serine/threonine kinase that regulates processes including mRNA translation, proliferation, and survival. By assembling with different cofactors, mTOR forms two complexes with distinct biological functions. Raptor-bound mTOR (mTORC1) governs cap-dependent mRNA translation, whereas mTOR, rictor, and mSin1 (mTORC2) activate the survival and proliferative kinase Akt. How the balance between the competing needs for mTORC1 and -2 is controlled in normal cells and deregulated in disease is poorly understood. Here, we show that the ubiquitin hydrolase UCH-L1 regulates the balance of mTOR signaling by disrupting mTORC1. We find that UCH-L1 impairs mTORC1 activity toward S6 kinase and 4EBP1 while increasing mTORC2 activity toward Akt. These effects are directly attributable to a dramatic rearrangement in mTOR complex assembly. UCH-L1 disrupts a complex between the DDB1-CUL4 ubiquitin ligase complex and raptor and counteracts DDB1-CUL4-mediated raptor ubiquitination. These events lead to mTORC1 dissolution and a secondary increase in mTORC2. Experiments in Uchl1-deficient and transgenic mice suggest that the balance between these pathways is important for preventing neurodegeneration and the development of malignancy. These data establish UCH-L1 as a key regulator of the dichotomy between mTORC1 and mTORC2 signaling.