Although arginine modification has been implicated in a number of cellular processes, the in vivo requirement of protein arginine methyltransferases (PRMTs) in specific biological processes remain to be clarified. In this study we characterize the Drosophila PRMT Capsuléen, homologous to human PRMT5. During Drosophila oogenesis, catalytic activity of Capsuléen is necessary for both the assembly of the nuage surrounding nurse cell nuclei and the formation of the pole plasm at the posterior end of the oocyte. In particular, we show that the nuage and pole plasm localization of Tudor, an essential component for germ cell formation, are abolished in csul mutant germ cells. We identify the spliceosomal Sm proteins as in vivo substrates of Capsuléen and demonstrate that Capsuléen, together with its associated protein Valois, is essential for the synthesis of symmetric di-methylated arginyl residues in Sm proteins. Finally, we show that Tudor can be targeted to the nuage in the absence of Sm methylation by Capsuléen, indicating that Tudor localization and Sm methylation are separate processes. Our results thus reveal the role of a PRMT in protein localization in germ cells.