Several lines of evidence indicate that DNA methylation plays a role in the transcriptional regulation of the murine alpha 1(I) collagen gene. To study the molecular mechanisms involved, a reporter gene construct containing the alpha 1(I) promoter and part of the first exon linked to the luciferase gene (Col3luc) was methylated in vitro and transfected into murine fibroblasts and embryonal carcinoma cells. Methylation resulted in repression of the alpha 1(I) promoter in both cell types, although it was less pronounced in embryonal carcinoma cells than in fibroblasts. The extent of repression depended on the density of methylation. DNase footprint and mobility shift assays indicated that the trans-acting factors binding to the alpha 1(I) promoter and first exon are ubiquitous factors and that their DNA binding is not inhibited by methylation. Transfection of Col3luc into Drosophila SL2 cells together with expression vectors for the transcription factors Sp1 and NF-1 showed that DNA methylation also inhibits the alpha 1(I) promoter in nonvertebrate cells, although to a much lesser extent than in murine cells. However, Sp1 and NF-1 transactivated the unmethylated and methylated reporter gene in SL2 cells equally well, confirming that these factors can bind and transactivate methylated DNA and indicating that DNA methylation represses the alpha 1(I) promoter by an indirect mechanism. This was further confirmed by cotransfection experiments with unspecific methylated competitor DNA which partially restored the activity of the methylated alpha 1(I) promoter. Our results suggest that DNA methylation can inhibit promoter activity by an indirect mechanism independent of methyl-C-binding proteins and that in vertebrate cells, chromatin structure and methyl-C-binding proteins cooperatively mediate the transcriptional inhibitory effect of DNA methylation.