Cytosine methylation and posttranslational modifications of the amino termini of the core histones in the nucleosome provide epigenetic codes for genome regulation. In the nucleus, not only is the DNA methylated, but the methylated DNA is also interpreted by methyl-CpG binding domain (MBD) proteins. MBD1 possesses an MBD involved in mediating DNA methylation-dependent transcriptional repression. The MBD of MBD1 binds a symmetrically methylated CpG sequence, but the precise roles of this domain have not been investigated. In addition, little is understood about the state of histone modifications within MBD1-containing heterochromatin on methylated gene promoters. Here we show that histone H3 methylase Suv39h1 and the methyl lysine-binding protein HP1 directly interact with MBD of MBD1 in vitro and in cells. Suv39h1 was found to enhance MBD1-mediated transcriptional repression via MBD but not via the C-terminal transcriptional repression domain of MBD1. Furthermore, MBD1 links to histone deacetylases through Suv39h1, resulting in methylation and deacetylation of histones for gene inactivation. These data indicate that MBD1 may tether the Suv39h1-HP1 complex to methylated DNA regions, suggesting the presence of a pathway from DNA methylation to the modifications of histones for epigenetic gene regulation.