Like that of many protein-coding genes, expression of the p21(CIP1) cell cycle inhibitor is regulated at the level of transcription elongation. While many transcriptional activators have been shown to stimulate elongation, the mechanisms by which promoter-specific repressors regulate pausing and elongation by RNA polymerase II (RNA PolII) are not well described. Here we report that the transcription factor Sp3 inhibits basal p21(CIP1) gene expression by promoter-bound RNA PolII. Knockdown of Sp3 led to increased p21(CIP1) mRNA levels and reduced occupancy of the negative elongation factor (NELF) at the p21(CIP1) promoter, although the level of binding of the positive transcription elongation factor b (P-TEFb) kinase was not increased. Sp3 depletion correlated with increased H3K36me3 and H2Bub1, two histone modifications associated with transcription elongation. Further, Sp3 was shown to promote the binding of protein phosphatase 1 (PP1) to the p21(CIP1) promoter, leading to reduced H3S10 phosphorylation, a finding consistent with Sp3-dependent regulation of the local balance between kinase and phosphatase activities. Analysis of other targets of Sp3-mediated repression suggests that, in addition to previously described SUMO modification-dependent chromatin-silencing mechanisms, inhibition of the transition of paused RNA PolII to productive elongation, described here for p21(CIP1), is a general mechanism by which transcription factor Sp3 fine-tunes gene expression.