Myeloid leukemia factor 1 (MLF1) stabilizes the activity of the tumor suppressor p53 by suppressing its E3 ubiquitin ligase, COP1, through a third component of the COP9 signalosome (CSN3). However, little is known about how MLF1 functions upstream of the CSN3-COP1-p53 pathway and how its deregulation by the formation of the fusion protein nucleophosmin (NPM)-MLF1, generated by t(3;5)(q25.1;q34) chromosomal translocation, leads to leukemogenesis. Here we show that MLF1 is a cytoplasmic-nuclear-shuttling protein and that its nucleolar localization on fusing with NPM prevents the full induction of p53 by both genotoxic and oncogenic cellular stress. The majority of MLF1 was located in the cytoplasm, but the treatment of cells with leptomycin B rapidly induced a nuclear accumulation of MLF1. A mutation of the nuclear export signal (NES) motif identified in the MLF1 sequence enhanced the antiproliferative activity of MLF1. The fusion of MLF1 with NPM translocated MLF1 to the nucleolus and abolished the growth-suppressing activity. The introduction of NPM-MLF1 into early-passage murine embryonic fibroblasts allowed the cells to escape from cellular senescence at a markedly earlier stage and induced neoplastic transformation in collaboration with the oncogenic form of Ras. Interestingly, disruption of the MLF1-derived NES sequence completely abolished the growth-promoting activity of NPM-MLF1 in murine fibroblasts and hematopoietic cells. Thus, our results provide important evidence that the shuttling of MLF1 is critical for the regulation of cell proliferation and a disturbance in the shuttling balance increases the cell's susceptibility to oncogenic transformation.