PML is a nuclear phosphoprotein that was first identified as part of a translocated chromosomal fusion product associated with acute promyelocytic leukaemia (APL). PML localises to distinct nuclear multi-protein complexes termed ND10, Kr bodies, PML nuclear bodies and PML oncogenic domains (PODs), which are disrupted in APL and are the targets for immediate early viral proteins, although little is known about their function. In a yeast two-hybrid screen, we first identified a ubiquitin-like protein named PIC1 (now known as SUMO-1), which interacts and co-localises with PML in vivo. More recent studies have now shown that SUMO-1 covalently modifies a number of target proteins including PML, RanGAP1 and IkappaBalpha and is proposed to play a role in either targeting modified proteins and/or inhibiting their degradation. The precise molecular role for the SUMO-1 modification of PML is unclear, and the specific lysine residues within PML that are targeted for modification and the PML sub-domains necessary for mediating the modification in vivo are unknown. Here we show that SUMO-1 covalently modifies PML both in vivo and in vitro and that the modification is mediated either directly or indirectly by the interaction of UBC9 with PML through the RING finger domain. Using site-specific mutagenesis, we have identified the primary PML-SUMO-1 modification site as being part of the nuclear localisation signal (Lys487 or Lys490). However SUMO-1 modification is not essential for PML nuclear localisation as only nuclear PML is modified. The sequence of the modification site fits into a consensus sequence for SUMO-1 modification and we have identified several other nuclear proteins which could also be targets for SUMO-1. We show that SUMO-1 modification appears to be dependant on the correct subcellular compartmentalisation of target proteins. We also find that the APL-associated fusion protein PML-RARA is efficiently modified in vitro, resulting in a specific and SUMO-1-dependent degradation of PML-RARA. Our results provide significant insights into the role of SUMO-1 modification of PML in both normal cells and the APL disease state.