Protein modification by SUMO conjugation has emerged to be an important regulatory event. Recently, the mechanisms through which SUMO elicits its effects on target proteins have been elucidated. One of these is the noncovalent association between SUMO and coregulatory proteins via SUMO interaction motifs (SIMs). We therefore searched for additional binding proteins to elucidate how SUMO acts as a signal to potentiate novel noncovalent interactions with SUMO-binding proteins. We identified an E3 ligase, Pc2, as a SUMO-binding protein with two functionally distinct SIMs. Here, we focus on the role of SIM2 and demonstrate that it is crucial for many of the documented Pc2 functions, which converge on determining its E3 ligase activity. One role of SUMO binding in this context is the subnuclear partitioning of the active form of Ubc9 (SUMO approximately Ubc9) by Pc2. The significance of the SIM2-dependent functions of Pc2 is demonstrated in the control of the precise expression of lineage-specific genes during embryonic stem cell differentiation.