C methylation at genomic CpG dinucleotides has been implicated in the regulation of a number of genetic activities during vertebrate cell differentiation and embryo development. The methylated CpG could induce chromatin condensation through the recruitment of histone deacetylase (HDAC)-containing complexes by methyl-CpG-binding proteins. These proteins consist of the methylated-DNA binding domain (MBD). Unexpectedly, however, several studies have identified MBD-containing proteins encoded by genes of Drosophila melanogaster, an invertebrate species supposed to be void of detectable m(5)CpG. We now report the genomic structure of a Drosophila gene, dMBD2/3, that codes for two MBD-containing, alternatively spliced, and developmentally regulated isoforms of proteins, dMBD2/3 and dMBD2/3Delta. Interestingly, in vitro binding experiments showed that as was the case for vertebrate MBD proteins, dMBD2/3Delta could preferentially recognize m(5)CpG-containing DNA through its MBD. Furthermore, dMBD2/3Delta as well as one of its orthologs in mouse, MBD2b, could function in human cells as a transcriptional corepressor or repressor. The activities of HDACs appeared to be dispensable for transcriptional repression by dMBD2/3Delta. Finally, dMBD2/3Delta also could repress transcription effectively in transfected Drosophila cells. The surprisingly similar structures and characteristics of the MBD proteins as well as DNA cytosine (C-5) methyltransferase-related proteins in Drosophila and vertebrates suggest interesting scenarios for their roles in eukaryotic cellular functions.