The Drosophila modifier of variegation modulo gene product binds specific RNA sequences at the nucleolus and interacts with DNA and chromatin in a phosphorylation-dependent manner.

modulo belongs to the modifier of Position Effect Variegation class of Drosophila genes, suggesting a role for its product in regulating chromatin structure. Genetics assigned a second function to the gene, in protein synthesis capacity. Bifunctionality is consistent with protein localization in two distinct subnuclear compartments, chromatin and nucleolus, and with its organization in modules potentially involved in DNA and RNA binding. In this study, we examine nucleic acid interactions established by Modulo at nucleolus and chromatin and the mechanism that controls the distribution and balances the function of the protein in the two compartments. Structure/function analysis and oligomer selection/amplification experiments indicate that, in vitro, two basic terminal domains independently contact DNA without sequence specificity, whereas a central RNA Recognition Motif (RRM)-containing domain allows recognition of a novel sequence-/motif-specific RNA class. Phosphorylation moreover is shown to down-regulate DNA binding. Evidence is provided that in vivo nucleolar Modulo is highly phosphorylated and belongs to a ribonucleoprotein particle, whereas chromatin-associated protein is not modified. A functional scheme is finally proposed in which modification by phosphorylation modulates Mod subnuclear distribution and balances its function at the nucleolus and chromatin.