Histone lysine methylation is dynamically regulated by lysine methyltransferases and lysine demethylases. Here we show that PHD finger protein 8 (PHF8), a protein containing a PHD finger and a Jumonji C (JmjC) domain, is associated with hypomethylated rRNA genes (rDNA). PHF8 interacts with the RNA polymerase I transcription machinery and with WD repeat-containing protein 5 (WDR5)-containing H3K4 methyltransferase complexes. PHF8 exerts a positive effect on rDNA transcription, with transcriptional activation requiring both the JmjC domain and the PHD finger. PHF8 demethylates H3K9me1/2, and its catalytic activity is stimulated by adjacent H3K4me3. A point mutation within the JmjC domain that is linked to mental retardation with cleft lip and palate (XLMR-CL/P) abolishes demethylase activity and transcriptional activation. Though further work is needed to unravel the contribution of PHF8 activity to mental retardation and cleft lip/palate, our results reveal a functional interplay between H3K4 methylation and H3K9me1/2 demethylation, linking dynamic histone methylation to rDNA transcription and neural disease.