DNA methylation inhibits transcription driven by the collagen alpha2(I) promoter and the 5' end of the gene in transient transfection and in vitro transcription assays. DNA-binding proteins in a unique family of ubiquitously expressed proteins, methylated DNA-binding protein (MDBP)/regulatory factor for X box (RFX), form specific complexes with a sequence overlapping the transcription start site of the collagen alpha2(I) gene. Complex formation increased when the CpG site at +7 base pairs from the transcription start site was methylated. The identity of the protein was demonstrated by co-migration and cross-competition for a characteristic slowly migrating doublet complex formed on MDBP/RFX recognition sequences and the collagen sequences by band shift assays. A RFX1-specific antibody supershifted the collagen DNA-protein complexes. Furthermore, in vitro translated RFX1 protein formed a specific complex with the collagen sequence that was also supershifted with the RFX1 antibody. MDBP/RFX displayed a higher affinity binding to the collagen sequence if the CpG at +7 was mutated in a manner similar to TpG. This same mutation within reporter constructs inhibited transcription in transfection and in vitro transcription assay. These results support the hypothesis that DNA methylation-induced inactivation of collagen alpha2(I) gene transcription is mediated, in part, by increased binding of MDBP/RFX to the first exon in response to methylation in this region.