PML fuses with retinoic acid receptor alpha (RARalpha) in the t(15;17) translocation that causes acute promyelocytic leukemia (APL). In addition to localizing diffusely throughout the nucleoplasm, PML mainly resides in discrete nuclear structures known as PML oncogenic domains (PODs), which are disrupted in APL and spinocellular ataxia cells. We isolated the Fas-binding protein Daxx as a PML-interacting protein in a yeast two-hybrid screen. Biochemical and immunofluorescence analyses reveal that Daxx is a nuclear protein that interacts and colocalizes with PML in the PODs. Reporter gene assay shows that Daxx drastically represses basal transcription, likely by recruiting histone deacetylases. PML, but not its oncogenic fusion PML-RARalpha, inhibits the repressor function of Daxx. In addition, SUMO-1 modification of PML is required for sequestration of Daxx to the PODs and for efficient inhibition of Daxx-mediated transcriptional repression. Consistently, Daxx is found at condensed chromatin in cells that lack PML. These data suggest that Daxx is a novel nuclear protein bearing transcriptional repressor activity that may be regulated by interaction with PML.