Previously we have shown that ASK-interacting protein 1 (AIP1, also known as DAB2IP), a novel member of the Ras-GAP protein family, mediates TNF-induced activation of ASK1-JNK signaling pathway. However, the mechanism by which TNF signaling is coupled to AIP1 is not known. Here we show that AIP1 is localized on the plasma membrane in resting endothelial cells (EC) in a complex with TNFR1. TNF binding induces release of AIP1 from TNFR1, resulting in cytoplasmic translocation and concomitant formation of an intracellular signaling complex comprised of TRADD, RIP1, TRAF2, and AIPl. A proline-rich region (amino acids 796-807) is critical for maintaining AIP1 in a closed form, which associates with a region of TNFR1 distinct from the death domain, the site of TNFR1 association with TRADD. An AIP1 mutant with deletion of this proline-rich region constitutively binds to TRAF2 and ASK1. A PERIOD-like domain (amino acids 591-719) of AIP1 binds to the intact RING finger of TRAF2, and specifically enhances TRAF2-induced ASK1 activation. At the same time, the binding of AIP1 to TRAF2 inhibits TNF-induced IKK-NF-kappaB signaling. Taken together, our data suggest that AIP1 is a novel transducer in TNF-induced TRAF2-dependent activation of ASK1 that mediates a balance between JNK versus NF-kappaB signaling.