Transcriptional silencing in mammals is often associated with promoter methylation. However, a considerable number of genomic methylated CpGs exist in transposable elements, which are frequently found in intronic regions. To determine whether intragenic methylation influences transcription efficiency, we used the Cre/loxP-based system, RMCE, to introduce a transgene, methylated exclusively in a region downstream of the promoter, into a specific genomic site. This methylation pattern was maintained in vivo, and yielded a clear decrease in transgene expression relative to an unmethylated control. Notably, RNA polymerase II (Pol II) was depleted exclusively in the methylated region, as was histone H3 di- and trimethylated on Lys4 and acetylated on Lys9 and Lys14. As the methylated region adopts a closed chromatin structure in vivo, we propose that dense intragenic DNA methylation in mammalian cells initiates formation of a chromatin structure that reduces the efficiency of Pol II elongation.