Members of the (L)Sm (Sm and Sm-like) protein family are found across all kingdoms of life and play crucial roles in RNA metabolism. The P-body component EDC3 (enhancer of decapping 3) is a divergent member of this family that functions in mRNA decapping. EDC3 is composed of a N-terminal LSm domain, a central FDF domain, and a C-terminal YjeF-N domain. We show that this modular architecture enables EDC3 to interact with multiple components of the decapping machinery, including DCP1, DCP2, and Me31B. The LSm domain mediates DCP1 binding and P-body localization. We determined the three-dimensional structures of the LSm domains of Drosophila melanogaster and human EDC3 and show that the domain adopts a divergent Sm fold that lacks the characteristic N-terminal alpha-helix and has a disrupted beta4-strand. This domain remains monomeric in solution and lacks several features that canonical (L)Sm domains require for binding RNA. The structures also revealed a conserved patch of surface residues that are required for the interaction with DCP1 but not for P-body localization. The conservation of surface and of critical structural residues indicates that LSm domains in EDC3 proteins adopt a similar fold that has separable novel functions that are absent in canonical (L)Sm proteins.