Activation-induced cytidine deaminase (AID) is a DNA mutator enzyme essential for adaptive immunity. AID initiates somatic hypermutation and class switch recombination (CSR) by deaminating cytosine to uracil in specific immunoglobulin (Ig) gene regions. However, other loci, including cancer-related genes, are also targeted. Thus, tight regulation of AID is crucial to balance immunity versus disease such as cancer. AID is regulated by several mechanisms including nucleocytoplasmic shuttling. Here we have studied nuclear import kinetics and subnuclear trafficking of AID in live cells and characterized in detail its nuclear localization signal. Importantly, we find that the nuclear localization signal motif also directs AID to nucleoli where it colocalizes with its interaction partner, catenin-β-like 1 (CTNNBL1), and physically associates with nucleolin and nucleophosmin. Moreover, we demonstrate that release of AID from nucleoli is dependent on its C-terminal motif. Finally, we find that CSR efficiency correlates strongly with the arithmetic product of AID nuclear import rate and DNA deamination activity. Our findings suggest that directional nucleolar transit is important for the physiological function of AID and demonstrate that nuclear/nucleolar import and DNA cytosine deamination together define the biological activity of AID. This is the first study on subnuclear trafficking of AID and demonstrates a new level in its complex regulation. In addition, our results resolve the problem related to dissociation of deamination activity and CSR activity of AID mutants.