The genetic basis of myotonic dystrophy type I (DM1) is the expansion of a CTG tract located in the 3' untranslated region of DMPK. Expression of mutant RNAs encoding expanded CUG repeats plays a central role in the development of cardiac disease in DM1. Expanded CUG tracts form both nuclear and cytoplasmic aggregates, yet the relative significance of such aggregates in eliciting DM1 pathology is unclear. To test the pathophysiology of CUG repeat encoding RNAs, we developed and analyzed mice with cardiac-specific expression of a beta-galactosidase cassette in which a (CTG)(400) repeat tract was positioned 3' of the termination codon and 5' of the bovine growth hormone polyadenylation signal. In these animals CUG aggregates form exclusively in the cytoplasm of cardiac cells. A key pathological consequence of expanded CUG repeat RNA expression in DM1 is aberrant RNA splicing. Abnormal splicing results from the functional inactivation of MBNL1, which is hypothesized to occur due to MBNL1 sequestration in CUG foci or from elevated levels of CUG-BP1. We therefore tested the ability of cytoplasmic CUG foci to elicit these changes. Aggregation of CUG RNAs within the cytoplasm results both in Mbnl1 sequestration and in approximately a two fold increase in both nuclear and cytoplasmic Cug-bp1 levels. Significantly, despite these changes RNA splice defects were not observed and functional analysis revealed only subtle cardiac dysfunction, characterized by conduction defects that primarily manifest under anesthesia. Using a human myoblast culture system we show that this transgene, when expressed at similar levels to a second transgene, which encodes expanded CTG tracts and facilitates both nuclear focus formation and aberrant splicing, does not elicit aberrant splicing. Thus the lack of toxicity of cytoplasmic CUG foci does not appear to be a consequence of low expression levels. Our results therefore demonstrate that the cellular location of CUG RNA aggregates is an important variable that influences toxicity and support the hypothesis that small molecules that increase the rate of transport of the mutant DMPK RNA from the nucleus into the cytoplasm may significantly improve DM1 pathology.