The ecotropic viral integration site 1 ( Evi1) gene encodes a putative transcription regulator, which is aberrantly expressed in acute myeloid leukemias (AML) with chromosomal abnormalities involving the 3q26 locus. Repression and activation of transcriptional control have been reported, but it is currently unclear how Evi1 may evoke these opposing effects. Using a yeast two-hybrid screen, we identified a novel binding partner of Evi1, i.e., methyl binding domain 3b (Mbd3b) protein, a member of the Mi-2/NuRD histone deacetylase complex. Applying in vitro and in vivo assays, we found that Evi1 interacts with Mbd3b but not with other MBD family members Mbd1, -2, and -4 or MeCP2. We show that interaction of Evi1 with Mbd3 requires 40 amino acids that are adjacent and downstream of the methyl binding domain (MBD). We further demonstrate that the first three zinc fingers of Evi1 are needed for Mbd3 interaction. Evi1 acts as a transcriptional repressor when recruited to an active promoter, yet when present in the Mi-2/NuRD complex through Mbd3 interaction, it inhibits the histone deacetylation function of this multiprotein structure. Our data may in part explain how Evi1 could act as a repressor as well as an activator of transcription.