Natural killer T (NKT) cells modulate immune responses against pathogens and tumours, as well as immunological tolerance. We show here that CYLD, a tumour suppressor with deubiquitinase function, has a pivotal and cell-intrinsic function in NKT cell development. Unlike other known NKT regulators, CYLD is dispensable for intrathymic NKT cell maturation but is obligatory for the survival of immature NKT cells. Interestingly, CYLD deficiency impairs the expression of ICOS, a costimulatory molecule required for the survival and homeostasis of NKT cells, and this molecular defect is associated with attenuated response to an NKT-survival cytokine, IL-7, due to reduced expression of IL-7 receptor. We show, for the first time, that IL-7 induces the expression of ICOS in NKT cells, which is largely dependent on CYLD. Interestingly, loss of CYLD causes constitutive NF-kappaB activation in developing NKT cells, which contributes to their defective IL-7 response and attenuated ICOS expression. These findings establish CYLD as a critical regulator of NKT cell development and provide molecular insights into this novel function of CYLD.