The perinucleolar compartment (PNC) is a unique nuclear structure localized at the periphery of the nucleolus. Several small RNAs transcribed by RNA polymerase III and two hnRNP proteins have been localized in the PNC (Ghetti, A., S. Piñol-Roma, W.M. Michael, C. Morandi, and G. Dreyfuss. 1992. Nucleic Acids Res. 20:3671-3678; Matera, A.G., M.R. Frey, K. Margelot, and S.L. Wolin. 1995. J. Cell Biol. 129:1181-1193; Timchenko, L.T., J.W. Miller, N.A. Timchenko, D.R. DeVore, K.V. Datar, L. Lin, R. Roberts, C.T. Caskey, and M.S. Swanson. 1996. Nucleic Acids Res. 24:4407-4414; Huang, S., T. Deerinck, M.H. Ellisman, and D.L. Spector. 1997. J. Cell Biol. 137:965-974). In this report, we show that the PNC incorporates Br-UTP and FITC-conjugated CTP within 5 min of pulse labeling. Selective inhibition of RNA polymerase I does not appreciably affect the nucleotide incorporation in the PNC. Inhibition of all RNA polymerases by actinomycin D blocks the incorporation completely, suggesting that Br-UTP incorporation in the PNC is due to transcription by RNA polymerases II and/or III. Treatment of cells with an RNA polymerase II and III inhibitor induces a significant reorganization of the PNC. In addition, double labeling experiments showed that poly(A) RNA and some of the factors required for pre-mRNA processing were localized in the PNC in addition to being distributed in their previously characterized nucleoplasmic domains. Fluorescence recovery after photobleaching (FRAP) analysis revealed a rapid turnover of polypyrimidine tract binding protein within the PNC, demonstrating the dynamic nature of the structure. Together, these findings suggest that the PNC is a functional compartment involved in RNA metabolism in the cell nucleus.