XBP1 is a key transcription factor that regulates the mammalian unfolded protein response. Its expression is regulated by unconventional mRNA splicing that is carried out by endonuclease IRE1 and a specific, as yet unknown, RNA ligase in response to the accumulation of unfolded proteins in the ER. Conventional mRNA splicing occurs only in the nucleus, but it has remained unclear whether unconventional splicing of XBP1 mRNA takes place in the nucleus, cytoplasm or both. Here, we show that the catalytic domain of IRE1 contains a nuclear exclusion signal to prevent IRE1 from mislocalizing to the nucleus. In addition, RNA ligase, which joins XBP1 exons cleaved by IRE1 was detected in the cytoplasm but not in the nucleus. Moreover, the cytoplasm contained large amounts of unspliced XBP1 mRNA compared with the nucleus. Most unspliced XBP1 mRNA was converted to spliced mRNA by unconventional splicing even if de novo transcription was blocked, suggesting that cytoplasmic XBP1 mRNA, not nuclear XBP1 mRNA, is a major substrate for unconventional splicing. From these observations, we concluded that unconventional splicing of XBP1 mRNA occurs predominantly in the cytoplasm.