Chromosomal translocations are a major source of genetic abnormalities causally linked to certain malignancies. Synovial sarcoma is an aggressive soft tissue tumor characterized by a chromosomal translocation between chromosome 18 and X, generating oncoproteins such as SYT-SSX1 and SYT-SSX2. The molecular mechanism underlying the oncogenic potential of SYT-SSX1/2 is not clear. Here we show that SYT-SSX1 leads to up-regulation of NCOA3, a protein critical for the formation of various cancers. The increase of NCOA3 is essential for SYT-SSX1-mediated synovial sarcoma formation. SYT-SSX1 does so by increasing the sumoylation of NCOA3 through interaction with a SUMO E3 ligase, PIASy, as well as the sumoylation of NEMO. NEMO has also been shown to physically interact with NCOA3. Increased sumoylation of NCOA3 leads to its increased steady state level and nuclear localization. Our findings represent the first example that an oncoprotein directly regulates substrate modification by a SUMO E3 ligase, and leads to overexpression of a protein essential for tumor formation. Such a mechanistic finding provides an opportunity to design specific therapeutic interventions to treat synovial sarcoma.