The mechanism by which ubiquitination of histone H2B (H2Bub1) regulates H3-K4 and -K79 methylation and the histone H2A-H2B chaperone Spt16-mediated nucleosome dynamics during transcription is not fully understood. Upon investigating the effect of H2Bub1 on chromatin structure, we find that contrary to the supposed role for H2Bub1 in opening up chromatin, it is important for nucleosome stability. First, we show that H2Bub1 does not function as a "wedge" to non-specifically unfold chromatin, as replacement of ubiquitin with a bulkier SUMO molecule conjugated to the C-terminal helix of H2B cannot functionally support H3-K4 and -K79 methylation. Second, using a series of biochemical analyses, we demonstrate that nucleosome stability is reduced or enhanced, when the levels of H2Bub1 are abolished or increased, respectively. Besides transcription elongation, we show that H2Bub1 regulates initiation by stabilizing nucleosomes positioned over the promoters of repressed genes. Collectively, our study reveals an intrinsic difference in the property of chromatin assembled in the presence or absence of H2Bub1 and implicates the regulation of nucleosome stability as the mechanism by which H2Bub1 modulates nucleosome dynamics and histone methylation during transcription.