Interferon-Stimulated Gene 15 (ISG15), an antagonist of the canonical ubiquitin pathway, is frequently overexpressed in various cancers. In cancer cells, ISG15 is detected as free (intracellular) and conjugated to cellular proteins (ISGylation). Free ISG15 is also secreted into the extracellular milieu. ISGylation has protumor functions and extracellular free ISG15 has immunomodulatory properties in vitro. Therefore, whether ISG15 is a tumor suppressor or tumor promoter in vivo remains controversial. The current study aimed to clarify the role of free ISG15 in tumorigenesis. Breast cancer cells stably expressing control, ISG15, and UbcH8 (ISG15-specific E2 ligase) shRNAs were used to assess the immunoregulatory and antitumor function of free ISG15 in cell culture (in vitro) and in nude mice (in vivo). We show that extracellular free ISG15 suppresses breast tumor growth and increases NK cell infiltration into xenografted breast tumors in nude mice, and intracellular free ISG15 enhances major histocompatibility complex (MHC) class I surface expression in breast cancer cells. We conclude that free ISG15 may have antitumor and immunoregulatory function in vivo. These findings provides the basis for developing strategies to increase systemic levels of free ISG15 to treat cancer patients overexpressing the ISG15 pathway.