PHAPI/pp32 is a tumor suppressor whose expression is altered in various human cancers. Although PHAPI possesses multiple biochemical activities, the molecular basis for its tumor-suppressive function has remained obscure. Recently we identified PHAPI as an apoptotic enhancer that stimulates apoptosome-mediated caspase activation. In this study, we defined the structural requirement for its activity to stimulate caspase activation using a series of truncation mutants of PHAPI. Further, utilizing these mutants, we provide evidence to support the model that the apoptotic activity of PHAPI is required for its tumor-suppressive capability. Consistently, pp32R1, a close homolog of PHAPI and yet an oncoprotein, is not able to stimulate caspase activation. A highly discrete region between these two proteins localizes to an essential caspase activation motif of PHAPI. Additionally, PHAPI is predominantly a nuclear protein, and it can translocate to the cytoplasm during apoptosis. Disruption of the nuclear localization signal of PHAPI caused a modest decrease of its tumor-suppressive function, indicating that nuclear localization of PHAPI contributes to, but is not essential for, tumor suppression.