Dot1p is involved in maintenance of the heterochromatin boundary, the DNA damage response, and transcriptional regulation in yeast and animals. Dot1p is a histone H3 lysine 79 (H3K79) methyltransferase, but H3K79 trimethylation (H3K79me3) by Dot1p requires histone H2B monoubiquitylation (H2Bub) as a pre-requisite. The underlying mechanism for H2Bub requirement has not been well elucidated. In this work, we found that nucleosomes containing H2Bub stimulate the yeast Dot1p to produce H3K79me3. A pulldown assay showed that the yeast Dot1p directly binds to ubiquitin. In addition, we demonstrate that a lysine-rich region (aa 101-140) in the first half of DNA binding domain of the Dot1p is critical in interaction with ubiquitin as well as binding to nucleosome core. Consistent with this, either deletion or point mutation of the lysine-rich region resulted in defect in global H3K79me3 accumulation and subtelomeric gene silencing in vivo. Taken together, our results indicate that a direct interaction between the lysine-rich region of Dot1p and the ubiquitin of H2Bub is required for H2Bub-mediated trans-tail regulation.