The Smt3 (SUMO) protein is conjugated to substrate proteins through a cascade of E1, E2, and E3 enzymes. In budding yeast, the E3 step in sumoylation is largely controlled by Siz1p and Siz2p. Analysis of Siz- cells shows that SUMO E3 is required for minichromosome segregation and thus has a positive role in maintaining the fidelity of mitotic transmission of genetic information. Sumoylation of the carboxy-terminus of Top2p, a known SUMO target, is mediated by Siz1p and Siz2p both in vivo and in vitro. Sumoylation in vitro reveals that Top2p is an extremely potent substrate for Smt3p conjugation and that chromatin-bound Top2p can still be sumoylated, unlike many other SUMO substrates. By combining mutations in the TOP2 sumoylation sites and the SIZ1 and SIZ2 genes we demonstrate that the minichromosome segregation defect and dicentric minichromosome stabilization, both characteristic for Smt3p-E3-deficient cells, are mediated by the lack of Top2p sumoylation in these cells. A role for Smt3p-modification as a signal for Top2p targeting to pericentromeric regions was suggested by an analysis of Top2p-Smt3p fusion. We propose a model for the positive control of the centromeric pool of Top2p, required for high segregation fidelity, by Smt3p modification.