Smith-Magenis Syndrome (SMS) is a complex genomic disorder mostly caused by the haploinsufficiency of the Retinoic Acid Induced 1 gene (RAI1), located in the chromosomal region 17p11.2. In a subset of SMS patients, heterozygous mutations in RAI1 are found. Here we investigate the molecular properties of these mutated forms and their relationship with the resulting phenotype. We compared the clinical phenotype of SMS patients carrying a mutation in RAI1 coding region either in the N-terminal or the C-terminal half of the protein and no significant differences were found. In order to study the molecular mechanism related to these two groups of RAI1 mutations first we analyzed those mutations that result in the truncated protein corresponding to the N-terminal half of RAI1 finding that they have cytoplasmic localization (in contrast to full length RAI1) and no ability to activate the transcription through an endogenous target: the BDNF enhancer. Similar results were found in lymphoblastoid cells derived from a SMS patient carrying RAI1 c.3103insC, where both mutant and wild type products of RAI1 were detected. The wild type form of RAI1 was found in the chromatin bound and nuclear matrix subcellular fractions while the mutant product was mainly cytoplasmic. In addition, missense mutations at the C-terminal half of RAI1 presented a correct nuclear localization but no activation of the endogenous target. Our results showed for the first time a correlation between RAI1 mutations and abnormal protein function plus they suggest that a reduction of total RAI1 transcription factor activity is at the heart of the SMS clinical presentation.