CpG methylation in vertebrates correlates with alterations in chromatin structure and gene silencing. Differences in DNA-methylation status are associated with imprinting phenomena and carcinogenesis. In Xenopus laevis oocytes, DNA methylation dominantly silences transcription through the assembly of a repressive nucleosomal array. Methylated DNA assembled into chromatin binds the transcriptional repressor MeCP2 which cofractionates with Sin3 and histone deacetylase. Silencing conferred by MeCP2 and methylated DNA can be relieved by inhibition of histone deacetylase, facilitating the remodelling of chromatin and transcriptional activation. These results establish a direct causal relationship between DNA methylation-dependent transcriptional silencing and the modification of chromatin.