Cytoskeletal dynamics are pivotal to memory, learning, and stress physiology, and thus psychiatric diseases. Downregulated in renal cell carcinoma 1 (DRR1) protein was characterized as the link between stress, actin dynamics, neuronal function, and cognition. To elucidate the underlying molecular mechanisms, we undertook a domain analysis of DRR1 and probed the effects on actin binding, polymerization, and bundling, as well as on actin-dependent cellular processes. Methods: DRR1 domains were cloned and expressed as recombinant proteins to perform in vitro analysis of actin dynamics (binding, bundling, polymerization, and nucleation). Cellular actin-dependent processes were analyzed in transfected HeLa cells with fluorescence recovery after photobleaching (FRAP) and confocal microscopy. Results: DRR1 features an actin binding site at each terminus, separated by a coiled coil domain. DRR1 enhances actin bundling, the cellular F-actin content, and serum response factor (SRF)-dependent transcription, while it diminishes actin filament elongation, cell spreading, and actin treadmilling. We also provide evidence for a nucleation effect of DRR1. Blocking of pointed end elongation by addition of profilin indicates DRR1 as a novel barbed end capping factor. Conclusions: DRR1 impacts actin dynamics in several ways with implications for cytoskeletal dynamics in stress physiology and pathophysiology.