Disrupted-In-Schizophrenia 1 (DISC1), a strong genetic candidate for psychiatric illness, encodes a multicompartmentalized molecular scaffold that regulates interacting proteins with key roles in neurodevelopment and plasticity. Missense DISC1 variants are associated with the risk of mental illness and with brain abnormalities in healthy carriers, but the underlying mechanisms are unclear. We examined the effect of rare and common DISC1 amino acid substitutions on subcellular targeting. We report that both the rare putatively causal variant 37W and the common variant 607F independently disrupt DISC1 nuclear targeting in a dominant-negative fashion, predicting that DISC1 nuclear expression is impaired in 37W and 607F carriers. In the nucleus, DISC1 interacts with the transcription factor Activating Transcription Factor 4 (ATF4), which is involved in the regulation of cellular stress responses, emotional behaviour and memory consolidation. At basal cAMP levels, wild-type DISC1 inhibits the transcriptional activity of ATF4, an effect that is weakened by both 37W and 607F independently, most likely as a consequence of their defective nuclear targeting. The common variant 607F additionally reduces DISC1/ATF4 interaction, which likely contributes to its weakened inhibitory effect. We also demonstrate that DISC1 modulates transcriptional responses to endoplasmic reticulum stress, and that this modulatory effect is ablated by 37W and 607F. By showing that DISC1 amino acid substitutions associated with psychiatric illness affect its regulatory function in ATF4-mediated transcription, our study highlights a potential mechanism by which these variants may impact on transcriptional events mediating cognition, emotional reactivity and stress responses, all processes of direct relevance to psychiatric illness.