Spinal muscular atrophy (SMA) is caused by a homozygous deletion or mutation in the survival motor neuron 1 (SMN1) gene that leads to reduced levels of SMN protein resulting in degeneration of motor neurons (MNs). The best known functions of SMN is the biogenesis of spliceosomal snRNPs. Linked to this function, Cajal bodies (CBs) are involved in the assembly of spliceosomal (snRNPs) and nucleolar (snoRNPs) ribonucleoproteins required for pre-mRNA and pre-rRNA processing. Recent studies support that the interaction between CBs and nucleoli, which are especially prominent in neurons, is essential for the nucleolar rRNA homeostasis. We use the SMN∆7 murine model of type I SMA to investigate the cellular basis of the dysfunction of RNA metabolism in MNs. SMN deficiency in postnatal MNs produces a depletion of functional CBs and relocalization of coilin, which is a scaffold protein of CBs, in snRNP-free perinucleolar caps or within the nucleolus. Disruption of CBs is the earliest nuclear sign of MN degeneration. We demonstrate that depletion of CBs, with loss of CB-nucleolus interactions, induces a progressive nucleolar dysfunction in ribosome biogenesis. It includes reorganization and loss of nucleolar transcription units, segregation of dense fibrillar and granular components, retention of SUMO-conjugated proteins in intranucleolar bodies and a reactive, compensatory, up-regulation of mature 18S rRNA and genes encoding key nucleolar proteins, such as upstream binding factor, fibrillarin, nucleolin and nucleophosmin. We propose that CB depletion and nucleolar alterations are essential components of the dysfunction of RNA metabolism in SMA.