Histone lysine methylation and DNA methylation contribute to transcriptional regulation. We have previously shown that acetylated histones are associated with unmethylated DNA and are nearly absent from the methylated DNA regions by using patch-methylated stable episomes in human cells. The present study further demonstrates that DNA methylation immediately downstream from the transcription start site has a dramatic impact on transcription and that DNA methylation has a larger effect on transcription elongation than on initiation. We also show that dimethylated histone H3 at lysine 4 (H3K4me2) is depleted from regions with DNA methylation and that this effect is not linked to the transcriptional activity in the region. This effect is a local one and does not extend even 200 bp from the methylated DNA regions. Although depleted primarily from the methylated DNA regions, the presence of trimethylated histone H3 at lysine 4 (H3K4me3) may be affected by transcriptional activity as well. The data here suggest that DNA methylation at the junction of transcription initiation and elongation is most critical in transcription suppression and that this effect is mechanistically mediated through chromatin structure. The data also strongly support the model in which DNA methylation and not transcriptional activity dictates a closed chromatin structure, which excludes H3K4me2 and H3K4me3 in the region, as one of the pathways that safeguards the silent state of genes.