The comedian and Rounds had adopted daughter Dakota together but couldn't make the relationship work and went through a nasty divorce in 2015. They fought over custody of the girl.
But O'Donnell, now 55, was eventually awarded full custody of Dakota, who was just 2 at the time.
Now she is 4 years old and a source told Straight Shuter, "Rosie and her young daughter are moving back into New York City.
"Rosie has signed a lease on the upper west side – and, of course, it's not in the Trump building," the source laughed about the funnywoman's famous nemesis.
Although Rounds' death has hit O'Donnell hard, the source said, "The decision to move back to New York was actually made months ago, long before the death of Rosie's former wife. Rosie is working on a few new projects and with her older kids growing up and moving away she doesn't need a big house anymore.
"Most of her friends are in the city and she wants to get back into city life - theatre, restaurants, bars and comedy clubs. She has felt isolated in the suburbs for a long time," the source revealed to Straight Shuter.
Rounds died on Monday from an apparent suicide, according to reports.
O'Donnell, 55, told US Weekly in a statement, "I am saddened to hear about this terrible tragedy. Mental illness is a very serious issue affecting many families. My thoughts and prayers go out to Michelle's family, her wife and their child."
Rounds had gone on to another marriage and child after she and Rosie split.
According to a Radar source, Rounds hadn't seen little Dakota in a long time before her tragic death.
As the Daily Mail reported, O'Donnell has vowed to never wed again. Her two marriages both ended.
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