Glis3 is a member of the Glis subfamily of Krüppel-like zinc finger transcription factors. Recently, Glis3 has been linked to both type I and type II diabetes and shown to positively regulate insulin gene expression. In this study, we have identified a region within the N terminus of Glis3 that shares high levels of homology with the Cubitus interruptus (Ci)/Gli family of proteins. We demonstrated that Glis3 interacts with Suppressor of Fused (SUFU), which involves a VYGHF motif located within this conserved region. We further showed that SUFU is able to inhibit the activation of the insulin promoter by Glis3 but not the activation by a Glis3 mutant deficient in its ability to bind SUFU, suggesting that the inhibitory effect is dependent on the interaction between the two proteins. Exogenous SUFU did not affect the nuclear localization of Glis3; however, Glis3 promoted the nuclear accumulation of SUFU. Additionally, we demonstrated that SUFU stabilizes Glis3 in part by antagonizing the Glis3 association with a Cullin 3-based E3 ubiquitin ligase that promotes the ubiquitination and degradation of Glis3. This is the first reported instance of Glis3 interacting with SUFU and suggests a novel role for SUFU in the modulation of Glis3 signaling. Given the critical role of Glis3 in pancreatic β-cell generation and maintenance, the elevated Glis3 expression in several cancers, and the established role of SUFU as a tumor suppressor, these data provide further insight into Glis3 regulation and its function in development and disease.