Small ubiquitin-like modifier (SUMO) modification is emerging as an important control in transcription regulation. Here, we show that CREB-binding protein (CBP), a versatile transcriptional coactivator for numerous transcription factors in response to diverse signaling events, can be modified by SUMO-1 at lysine residues 999, 1034, and 1057 both in vitro and in vivo. Mutation of the SUMO acceptor lysine residues either individually or in combination enhanced CBP transcriptional activity, and expression of a SUMO protease SENP2 potentiated the transcriptional activity of CBP wild-type but not its sumoylation mutant, indicating that SUMO modification negatively regulates CBP transcriptional activity. Furthermore, we demonstrated an interaction of SUMO-1-modified CBP with the transcriptional corepressor Daxx and an essential role of Daxx in mediating SUMO-dependent transcriptional regulation of CBP through histone deacetylase 2 recruitment. Together, our findings indicate that SUMO modification and subsequent recruitment of Daxx represent a previously undescribed mechanism in modulating CBP transcriptional potential.