Class II major histocompatibility (MHC-II) genes are prototype targets of IFN-gamma. IFN-gamma activates the expression of the non-DNA-binding master regulator of MHC-II, class II transactivator (CIITA), which is crucial for enhanceosome formation and gene activation. This report shows the importance of the histone methyltransferase, coactivator-associated arginine methyltransferase (CARM1/PRMT4), during IFN-gamma-induced MHC-II gene activation. It also demonstrates the coordinated regulation of CIITA, CARM1, and the acetyltransferase cyclic-AMP response element binding (CREB)-binding protein (CBP) during this process. CARM1 synergizes with CIITA in activating MHC-II transcription and synergy is abrogated when an arginine methyltransferase-defective CARM1 mutant is used. Protein-arginine methyltransferase 1 has much less effect on MHC-II transcription. Specific RNA interference reduced CARM1 expression as well as MHC-II expression. The recruitment of CARM1 to the promoter requires endogenous CIITA and results in methylation of histone H3-R17; hence, CIITA is an upstream regulator of histone methylation. Previous work has shown that CARM1 can methylate CBP at three arginine residues. Using wild-type CBP and a mutant of CBP lacking the CARM1-targeted arginine residues (R3A), we show that arginine methylation of CBP is required for IFN-gamma induction of MHC-II. A kinetic analysis shows that CIITA, CARM1, and H3-R17 methylation all precede CBP loading on the MHC-II promoter during IFN-gamma treatment. These results suggest functional and temporal relationships among CIITA, CARM1, and CBP for IFN-gamma induction of MHC-II.