Daxx-mediated transcriptional regulation was modulated by a speckled POZ domain protein SPOP which was first identified as an auto-antigen from the serum of a scleroderma patient. This is the report on the biochemical and functional interactions between Daxx and SPOP. The COOH-terminal region of Daxx interacts with the NH2-terminal region of SPOP. SPOP counteracts Daxx which binds with ETS1 transcription factor to repress the expression of ETS1 responsive gene. We observed that SPOP reverses Daxx-mediated transcriptional repression of MMP1 gene through inhibiting the binding of Daxx with ETS1. Mutagenesis study suggests that the ability of SPOP to self-associate as well as its ability to bind with Daxx is important for the modulation of Daxx-mediated transcriptional repression. This study proposes that SPOP plays an essential role in maintaining the balance between ECM deposition and degradation.