In myotonic dystrophy 1 (DM1), aggregation of the mutant DMPK RNA into RNA-protein complexes containing MBNL1 and MBNL2 has been linked to aberrant splicing of the insulin receptor (IR) RNA. In a parallel line of investigation, elevated levels of CUG-binding protein (CUG-BP) have been shown to result in altered IR splicing in DM1. The relative importance of MBNL1, MBNL2, and CUG-BP in DM1 pathogenesis is, however, unclear. Here we have demonstrated that either small interfering RNA-mediated down-regulation of MBNL1 and MBNL2 or the overexpression of CUG-BP in normal myoblasts results in abnormal IR splicing. Our results suggest that CUG-BP regulates the equilibrium of splice site selection by antagonizing the facilitatory activity of MBNL1 and MBNL2 on IR exon 11 splicing in a dose-dependent manner. We have shown that CUG-BP levels are elevated in DM1 cells by mechanisms that are independent of MBNL1 and MBNL2 loss. Importantly, rescue experiments in DM1 myoblasts demonstrated that loss of MBNL1 function is the key event, whereas the overexpression of CUG-BP plays a secondary role in the aberrant alternative splicing of IR RNA in DM1. Small interfering RNA-mediated down-regulation of MBNL1, MBNL2, and CUG-BP in DM1 myoblasts demonstrated that MBNL1 plays a critical role in the maintenance of DM1 focus integrity. Thus, these experiments demonstrate that sequestration of MBNL1 by the expanded CUG repeats is the primary determinant of both DM1 focus formation and the abnormal splicing of the IR RNA in DM1 myoblasts. The data therefore support MBNL1-mediated therapy for DM1.