The p160 family of coactivators, SRC-1, GRIP1/TIF2, and p/CIP, mediate transcriptional activation by nuclear hormone receptors. Coactivator-associated arginine methyltransferase 1 (CARM1), a previously unidentified protein that binds to the carboxyl-terminal region of p160 coactivators, enhanced transcriptional activation by nuclear receptors, but only when GRIP1 or SRC-1a was coexpressed. Thus, CARM1 functions as a secondary coactivator through its association with p160 coactivators. CARM1 can methylate histone H3 in vitro, and a mutation in the putative S-adenosylmethionine binding domain of CARM1 substantially reduced both methyltransferase and coactivator activities. Thus, coactivator-mediated methylation of proteins in the transcription machinery may contribute to transcriptional regulation.