We report the identification and characterization of a previously unknown suppressor of myopathy caused by expansion of CUG repeats, the mutation that triggers Myotonic Dystrophy Type 1 (DM1). We screened a collection of genes encoding RNA-binding proteins as candidates to modify DM1 pathogenesis using a well established Drosophila model of the disease. The screen revealed smaug as a powerful modulator of CUG-induced toxicity. Increasing smaug levels prevents muscle wasting and restores muscle function, while reducing its function exacerbates CUG-induced phenotypes. Using human myoblasts, we show physical interactions between human Smaug (SMAUG1/SMAD4A) and CUGBP1. Increased levels of SMAUG1 correct the abnormally high nuclear accumulation of CUGBP1 in myoblasts from DM1 patients. In addition, augmenting SMAUG1 levels leads to a reduction of inactive CUGBP1-eIF2a translational complexes and to a correction of translation of MRG15, a downstream target of CUGBP1. Therefore, Smaug suppresses CUG-mediated muscle wasting at least in part via restoration of translational activity of CUGBP1.