DNA methylation of promoter-associated CpG islands is involved in the transcriptional repression of vertebrate genes. To investigate the mechanisms underlying gene inactivation by DNA methylation, we characterized a human MBD1 protein, one of the components of MeCP1, which possesses a methyl-CpG binding domain (MBD) and cysteine-rich (CXXC) domains. Four novel MBD1 isoforms (MBD1v1, MBD1v2, MBD1v3, and MBD1v4) were identified by the reverse transcription-PCR method. We found that these transcripts were alternatively spliced in the region of CXXC domains and the C terminus. Green fluorescent protein-fused MBD1 was localized to multiple foci on the human genome, mostly in the euchromatin regions, and particularly concentrated in the pericentromeric region of chromosome 1. Both the MBD sequence and genome methylation were required for proper localization of the MBD1 protein. We further investigated whether MBD1 isoforms are responsible for transcriptional repression of human genes. A bacterially expressed MBD1 protein bound preferentially to methylated DNA fragments containing CpG islands from the tumor suppressor genes p16, VHL, and E-cadherin and from an imprinted SNRPN gene. All MBD1 isoforms inhibited promoter activities of these genes via methylation. Interestingly, MBD1 isoforms v1 and v2 containing three CXXC domains also suppressed unmethylated promoter activities in mammalian cells. These effects were further manifested in Drosophila melanogaster cells, which lack genome methylation. Sp1-activated transcription of methylated p16 and SNRPN promoters was inhibited by all of the MBD1 isoforms, whereas the isoforms v1 and v2 reduced Sp1-activated transcription from unmethylated promoters as well. These findings suggested that the MBD1 isoforms have different roles in methylation-mediated transcriptional silencing in euchromatin.