Activation of gene transcription involves chromatin remodeling by coactivator proteins that are recruited by DNA-bound transcription factors. Local modification of chromatin structure at specific gene promoters by ATP-dependent processes and by posttranslational modifications of histone N-terminal tails provides access to RNA polymerase II and its accompanying transcription initiation complex. While the roles of lysine acetylation, serine phosphorylation, and lysine methylation of histones in chromatin remodeling are beginning to emerge, low levels of arginine methylation of histones have only recently been documented, and its physiological role is unknown. The coactivator CARM1 methylates histone H3 at Arg17 and Arg26 in vitro and cooperates synergistically with p160-type coactivators (e.g., GRIP1, SRC-1, ACTR) and coactivators with histone acetyltransferase activity (e.g., p300, CBP) to enhance gene activation by steroid and nuclear hormone receptors (NR) in transient transfection assays. In the current study, CARM1 cooperated with GRIP1 to enhance steroid hormone-dependent activation of stably integrated mouse mammary tumor virus (MMTV) promoters, and this coactivator function required the methyltransferase activity of CARM1. Chromatin immunoprecipitation assays and immunofluorescence studies indicated that CARM1 and the CARM1-methylated form of histone H3 specifically associated with a large tandem array of MMTV promoters in a hormone-dependent manner. Thus, arginine-specific histone methylation by CARM1 is an important part of the transcriptional activation process.