Methylation of CpG islands is associated with transcriptional silencing and the formation of nuclease-resistant chromatin structures enriched in hypoacetylated histones. Methyl-CpG-binding proteins, such as MeCP2, provide a link between methylated DNA and hypoacetylated histones by recruiting histone deacetylase, but the mechanisms establishing the methylation patterns themselves are unknown. Whether DNA methylation is always causal for the assembly of repressive chromatin or whether features of transcriptionally silent chromatin might target methyltransferase remains unresolved. Mammalian DNA methyltransferases show little sequence specificity in vitro, yet methylation can be targeted in vivo within chromosomes to repetitive elements, centromeres and imprinted loci. This targeting is frequently disrupted in tumour cells, resulting in the improper silencing of tumour-suppressor genes associated with CpG islands. Here we show that the predominant mammalian DNA methyltransferase, DNMT1, co-purifies with the retinoblastoma (Rb) tumour suppressor gene product, E2F1, and HDAC1 and that DNMT1 cooperates with Rb to repress transcription from promoters containing E2F-binding sites. These results establish a link between DNA methylation, histone deacetylase and sequence-specific DNA binding activity, as well as a growth-regulatory pathway that is disrupted in nearly all cancer cells.