The three-way connection between DNA methylation, gene activity and chromatin structure has been known for almost two decades. Nevertheless, the molecular link between methyl groups on the DNA and the positioning of nucleosomes to form an inactive chromatin configuration was missing. This review discusses recent experimental data that may, for the first time, shed light on this molecular link. MeCP2, which is a known methylcytosine-binding protein, has been shown to possess a transcriptional repressor domain (TRD) that binds the corepressor mSin3A. This corepressor protein constitutes the core of a multiprotein complex that includes histone deacetylases (HDAC1 and HDAC2). Transfection and injection experiments with methylated constructs have revealed that the silenced state of a methylated gene, which is associated with a deacetylated nucleosomal structure, could be relieved by the deacetylase inhibitor, trichostatin A. Thus, methylation plays a pivotal role in establishing and maintaining an inactive state of a gene by rendering the chromatin structure inaccessible to the transcription machinery.