An RNA CUG triplet repeat binding protein, CUGBP1, regulates splicing and translation of various RNAs. Expansion of RNA CUG repeats in the 3-untranslated repeat of the mutant myotonin protein kinase (DMPK) mRNA in myotonic dystrophy (DM) is associated with alterations in binding activity of CUGBP1. To investigate whether CUGBP1 is directly affected by expansion of CUG repeats in DM tissues, we examined the intracellular status of CUGBP1 in DM patients as well as in cultured cells over expressing RNA CUG repeats. The analysis of RNA⅐protein complexes showed that, in control tissues, the majority of CUGBP1 is free of RNA, whereas in DM patients the majority of CUGBP1 is associated with RNA containing CUG repeats. Similarly to DM patients, overexpression of RNA CUG repeats in cultured cells results in the re-allocation of CUGBP1 from a free state to the RNA⅐protein complexes containing CUG repeats. CUG repeat-dependent translocation of CUGBP1 into RNA⅐protein complexes is associated with increased levels of CUGBP1 protein and its binding activity. Experiments with cyclohexamide-dependent block of protein synthesis showed that the half-life of CUGBP1 is increased in cells expressing CUG repeats. Alteration of CUGBP1 in DM is accompanied by alteration in translation of a transcription factor CCAAT/ enhancer-binding protein ␤ (C/EBP␤), which has been previously described to be a target of CUGBP1. Analysis of C/EBP␤ isoforms in DM patients with altered levels of CUGBP1 showed that translation of a dominant negative isoform, LIP, is induced by CUGBP1. Results of this paper demonstrate that the expansion of CUG repeats in DM affects RNA-binding proteins and leads to alteration in RNA processing.