Mutations in the gene encoding Fused in Sarcoma (FUS) cause amyotrophic lateral sclerosis (ALS), a fatal neurodegenerative disorder. FUS is a predominantly nuclear DNA- and RNA-binding protein that is involved in RNA processing. Large FUS-immunoreactive inclusions fill the perikaryon of surviving motor neurons of ALS patients carrying mutations at post-mortem. This sequestration of FUS is predicted to disrupt RNA processing and initiate neurodegeneration. Here, we demonstrate that C-terminal ALS mutations disrupt the nuclear localizing signal (NLS) of FUS resulting in cytoplasmic accumulation in transfected cells and patient fibroblasts. FUS mislocalization is rescued by the addition of the wild-type FUS NLS to mutant proteins. We also show that oxidative stress recruits mutant FUS to cytoplasmic stress granules where it is able to bind and sequester wild-type FUS. While FUS interacts with itself directly by protein–protein interaction, the recruitment of FUS to stress granules and interaction with PABP are RNA dependent. These findings support a two-hit hypothesis, whereby cytoplasmic mislocalization of FUS protein, followed by cellular stress, contributes to the formation of cytoplasmic aggregates that may sequester FUS, disrupt RNA processing and initiate motor neuron degeneration.