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Coronaviruses, including SARS-CoV-2, encode multifunctional proteases that are essential for viral replication and evasion of host innate immune mechanisms. The papain-like protease PLpro cleaves the viral polyprotein, and reverses inflammatory ubiquitin and anti-viral ubiquitin-like ISG15 protein modifications1,2. Drugs that target SARS-CoV-2 PLpro (hereafter, SARS2 PLpro) may hence be effective as treatments or prophylaxis for COVID-19, reducing viral load and reinstating innate immune responses3. We here characterise SARS2 PLpro in molecular and biochemical detail. SARS2 PLpro cleaves Lys48-linked polyubiquitin and ISG15 modifications with high activity. Structures of PLpro bound to ubiquitin and ISG15 reveal that the S1 ubiquitin binding site is responsible for high ISG15 activity, while the S2 binding site provides Lys48 chain specificity and cleavage efficiency. We further exploit two strategies to target PLpro. A repurposing approach, screening 3727 unique approved drugs and clinical compounds against SARS2 PLpro, identified no compounds that inhibited PLpro consistently or that could be validated in counterscreens. More promisingly, non-covalent small molecule SARS PLpro inhibitors were able to inhibit SARS2 PLpro with high potency and excellent antiviral activity in SARS-CoV-2 infection models.