The adenosine deaminases that act on RNA (ADARs) catalyze the site-specific conversion of adenosine to inosine (A to I) in primary mRNA transcripts, thereby affecting the splicing pattern or coding potential of mature mRNAs. Although the subnuclear localization of A-to-I editing has not been precisely defined, ADARs have been shown to act before splicing, suggesting that they function near nucleoplasmic sites of transcription. Here we demonstrate that ADAR2, a member of the vertebrate ADAR family, is concentrated in the nucleolus, a subnuclear domain disparate from the sites of mRNA transcription. Selective inhibition of ribosomal RNA synthesis or the introduction of mutations in the double-stranded RNA-binding domains within ADAR2 results in translocation of the protein to the nucleoplasm, suggesting that nucleolar association of ADAR2 depends on its ability to bind to ribosomal RNA. Fluorescence recovery after photobleaching reveals that ADAR2 can shuttle rapidly between subnuclear compartments. Enhanced translocation of endogenous ADAR2 from the nucleolus to the nucleoplasm results in increased editing of endogenous ADAR2 substrates. These observations indicate that the nucleolar localization of ADAR2 represents an important mechanism by which RNA editing can be modulated by the sequestration of enzymatic activity from potential RNA substrates in the nucleoplasm.