Daxx has been reported to mediate the Fas/JNK-dependent signals in the cytoplasm. However, several lines of evidence have suggested that Daxx is located mainly in the nucleus and functions as a transcriptional regulator. Recent studies have further indicated that Daxx-elicited transcriptional repression can be inhibited by the nuclear body-associated promyelocytic leukemia protein and apoptosis signal-regulating kinase 1 by sequestering Daxx to the nuclear bodies and the cytoplasm, respectively. Here, we further investigated the coordinated molecular mechanism by which Daxx function is regulated through protein-protein interaction. Using yeast two-hybrid screens to identify Daxx-interacting protein(s), three independent clones encoding the 58-kDa microspherule protein (MSP58) fragments were identified. Furthermore, we have demonstrated that Daxx interacts in vitro and in vivo with MSP58 via its NH2-terminal segment, which is distinct from the binding region of Fas, apoptosis signal-regulating kinase 1, and promyelocytic leukemia protein, suggesting a unique modulatory role of MSP58 on Daxx function. Transient transfection experiments revealed that MSP58 relieves the repressor activity of Daxx in a dose-dependent manner in COS-1 and 293 cells but not in HeLa cells, implicating cell type-specific modulation of Daxx function by MSP58. Moreover, immunofluorescence analysis unequivocally demonstrated that MSP58 overexpression results in a translocation of Daxx to the enlarged nucleoli in COS-1 or 293 cells, whereas Daxx exhibited a diffuse nuclear pattern in HeLa cells. Taken together, these findings delineate a network of regulatory signaling pathways that converges on MSP58/Daxx interaction, causally associating Daxx nucleolus targeting with its transcriptional activation function.