The inner centromere is a region on every mitotic chromosome that enables specific biochemical reactions that underlie properties, such as the maintenance of cohesion, the regulation of kinetochores and the assembly of specialized chromatin, that can resist microtubule pulling forces. The chromosomal passenger complex (CPC) is abundantly localized to the inner centromeres and it is unclear whether it is involved in non-kinase activities that contribute to the generation of these unique chromatin properties. We find that the borealin subunit of the CPC drives phase separation of the CPC in vitro at concentrations that are below those found on the inner centromere. We also provide strong evidence that the CPC exists in a phase-separated state at the inner centromere. CPC phase separation is required for its inner-centromere localization and function during mitosis. We suggest that the CPC combines phase separation, kinase and histone code-reading activities to enable the formation of a chromatin body with unique biochemical activities at the inner centromere.