How polycomb group proteins repress gene expression in vivo is not known. While histone-modifying activities of the polycomb repressive complexes (PRCs) have been studied extensively, in vitro data have suggested a direct activity of the PRC1 complex in compacting chromatin. Here, we investigate higher-order chromatin compaction of polycomb targets in vivo. We show that PRCs are required to maintain a compact chromatin state at Hox loci in embryonic stem cells (ESCs). There is specific decompaction in the absence of PRC2 or PRC1. This is due to a PRC1-like complex, since decompaction occurs in Ring1B null cells that still have PRC2-mediated H3K27 methylation. Moreover, we show that the ability of Ring1B to restore a compact chromatin state and to repress Hox gene expression is not dependent on its histone ubiquitination activity. We suggest that Ring1B-mediated chromatin compaction acts to directly limit transcription in vivo.