DRE-antagonist modulator (DREAM) is a transcriptional repressor that binds to downstream regulatory elements (DREs) in its target genes. This study shows that DREAM binds to the gene encoding the deubiquitinase A20, repressing its transcription and promoting inflammation. Dream−/− mice survived severe lipopolysaccharide (LPS)-induced lung injury better than wild-type mice, showing reduced neutrophil influx and pro-inflammatory cytokine production. Knockdown of A20 expression in Dream−/− mice confirmed that upregulated A20 was responsible for limiting inflammation in these mice. DNA-binding analysis revealed that, in the presence of LPS, DREAM binding to the promoter of the gene encoding A20 is replaced by the transcription factor upstream stimulatory factor 1 (USF1), which suggests a coordinated regulation of A20 transcription by DREAM and USF1. DREAM-mediated suppression of A20 expression enabled the activation of nuclear factor-κB signalling and the downstream target genes responsible for inflammation.