In Drosophila, dosage compensation of X-linked genes is achieved by transcriptional upregulation of the male X chromosome. Genetic and biochemical studies have demonstrated that male-specific lethal (MSL) proteins together with roX RNAs regulate this process. Here, we show that MSL-3 is essential for cell viability and that three domains in the protein have distinct roles in dosage compensation. The chromo-barrel domain (CBD) is not necessary for MSL targeting to the male X chromosome but is important for male viability and equalization of X-linked gene transcription. The polar region cooperates with the CBD in MSL-3 function, whereas the MRG domain is responsible for targeting the protein to the X chromosome. Our results demonstrate that MSL-3 localization to the male X chromosome and transcriptional upregulation of X-linked genes are two separable functions of the MSL-3 protein.