Background: The cell nucleus contains distinct classes of subnuclear bodies, including nucleoli, splicing speckles, Cajal bodies, gems, and PML bodies. Many nuclear proteins are known to interact dynamically with one or other of these bodies, and disruption of the specific organization of nuclear proteins can result in defects in cell functions and may cause molecular disease. Results: A proteomic study of purified human nucleoli has identified novel proteins, including Paraspeckle Protein 1 (PSP1) (see accompanying article, this issue of Current Biology). Here we show that PSP1 accumulates in a new nucleoplasmic compartment, termed paraspeckles, that also contains at least two other protein components: PSP2 and p54/nrb. A similar pattern of typically 10 to 20 paraspeckles was detected in all human cell types analyzed, including primary and transformed cells. Paraspeckles correspond to discrete bodies in the interchromatin nucleoplasmic space that are often located adjacent to splicing speckles. A stable cell line expressing YFP-PSP1 has been established and used to demonstrate that PSP1 interacts dynamically with nucleoli and paraspeckles in living cells. The three paraspeckle proteins relocalize quantitatively to unique cap structures at the nucleolar periphery when transcription is inhibited. Conclusions: We have identified a novel nuclear compartment, termed paraspeckles, found in both primary and transformed human cells. Paraspeckles contain at least three RNA binding proteins that all interact dynamically with the nucleolus in a transcription-dependent fashion.