Phase separation of substrates and effectors is proposed to enhance biological reaction rates and efficiency. Targeting protein for Xklp2 (TPX2) is an effector of branching microtubule nucleation in spindles and functions with the substrate tubulin by an unknown mechanism. Here we show that TPX2 phase separates into a co-condensate with tubulin, which mediates microtubule nucleation in vitro and in isolated cytosol. TPX2-tubulin co-condensation preferentially occurs on pre-existing microtubules, the site of branching microtubule nucleation, at the endogenous and physiologically relevant concentration of TPX2. Truncation and chimera versions of TPX2 suggest that TPX2-tubulin co-condensation enhances the efficiency of TPX2-mediated branching microtubule nucleation. Finally, the known inhibitor of TPX2, the importin-α/β heterodimer, regulates TPX2 condensation in vitro and, consequently, branching microtubule nucleation activity in isolated cytosol. Our study demonstrates how regulated phase separation can simultaneously enhance reaction efficiency and spatially coordinate microtubule nucleation, which may facilitate rapid and accurate spindle formation.