Our previous work has demonstrated that the Tudor domain of the 'survival of motor neuron' protein and the Tudor domain-containing protein 3 (TDRD3) are highly similar and that they both have the ability to interact with arginine-methylated polypeptides. TDRD3 has been identified among genes whose overexpression has a strong predictive value for poor prognosis of estrogen receptor-negative breast cancers, although its precise function remains unknown. TDRD3 is a modular protein, and in addition to its Tudor domain, it harbors a putative nucleic acid recognition motif and a ubiquitin-associated domain. We report here that TDRD3 localizes predominantly to the cytoplasm, where it co-sediments with the fragile X mental retardation protein on actively translating polyribosomes. We also demonstrate that TDRD3 accumulates into stress granules (SGs) in response to various cellular stresses. Strikingly, the Tudor domain of TDRD3 was found to be both required and sufficient for its recruitment to SGs, and the methyl-binding surface in the Tudor domain is important for this process. Pull down experiments identified five novel TDRD3 interacting partners, most of which are potentially methylated RNA-binding proteins. Our findings revealed that two of these proteins, SERPINE1 mRNA-binding protein 1 and DEAD/H box-3 (a gene often deleted in Sertoli-cell-only syndrome), are also novel constituents of cytoplasmic SGs. Taken together, we report the first characterization of TDRD3 and its functional interaction with at least two proteins implicated in human genetic diseases and present evidence supporting a role for arginine methylation in the regulation of SG dynamics.