The Mi-2/NuRD complex is a multi-subunit protein complex with enzymatic activities involving chromatin remodeling and histone deacetylation. Targeting of Mi-2/NuRD to methylated CpG sequences mediates gene repression. The function of p66alpha and of p66beta within the multiple subunits has not been addressed. Here, we analyzed the in vivo function and binding of both p66-paralogs. Both factors function in synergy, since knocking-down p66alpha affects the repressive function of p66beta and vice versa. Both proteins interact with MBD2 functionally and biochemically. Mutation of a single amino acid of p66alpha abolishes in vivo binding to MBD2 and interferes with MBD2-mediated repression. This loss of binding results in a diffuse nuclear localization in contrast to wild-type p66alpha that shows a speckled nuclear distribution. Furthermore, wild-type subnuclear distribution of p66alpha and p66beta depends on the presence of MBD2. Both proteins interact with the tails of all octamer histones in vitro, and acetylation of histone tails interferes with p66 binding. The conserved region 2 of p66alpha is required for histone tail interaction as well as for wild-type subnuclear distribution. These results suggest a two-interaction forward feedback binding mode, with a stable chromatin association only after deacetylation of the histones has occurred.