A growing number of transcriptional regulatory proteins are known to be modified by the small ubiquitin-like protein, SUMO. Posttranslational modification by SUMO may be one means by which transcriptional regulatory factors that play context-dependent roles in multiple processes can be regulated such that they direct the appropriate cellular and developmental outcomes. In early vertebrate embryos, SUMOylation of SoxE transcription factors profoundly affects their function, inhibiting their neural crest–inducing activity and promoting ear formation. In this paper, we provide mechanistic insight into how SUMO modification modulates SoxE function. We show that SUMOylation dramatically altered recruitment of transcriptional coregulator factors by SoxE proteins, displacing coactivators CREB-binding protein/p300 while promoting the recruitment of a corepressor, Grg4. These data demonstrate that SoxE proteins can function as transcriptional repressors in a SUMO-dependent manner. They further suggest a novel multivalent mechanism for SUMO-mediated recruitment of transcriptional coregulatory factors.