Histone hypoacetylation and DNA hypermethylation are hallmarks of gene silencing. Although a role for DNA methylation in regulating histone acetylation has been established, it is not clear how and whether epigenetic histone markings influence DNA modifications in transcriptional silencing. We have previously shown that induction of histone acetylation by trichostatin A promotes demethylation of ectopically methylated DNA (Cervoni, N., and Szyf, M. (2001) J. Biol. Chem. 276, 40778-40787). The oncoprotein Set/TAF-Ibeta is a subunit of the recently identified inhibitor of acetyltransferases complex that inhibits histone acetylation by binding to and masking histone acetyltransferase targets (Seo, S. B., McNamara, P., Heo, S., Turner, A., Lane, W. S., and Chakravarti, D. (2001) Cell 104, 119-130). We show here that the overexpression of Set/TAF-Ibeta, whose expression is up-regulated in multiple tumor tissues, inhibits demethylation of ectopically methylated DNA resulting in gene silencing. Overexpression of a mutant Set/TAF-Ibeta that does not inhibit histone acetylation is defective in inhibiting DNA demethylation. Taken together, these results are consistent with a novel regulatory role for Set/TAF-Ibeta, integrating epigenetic states of histones and DNA in gene regulation and provide a new mechanism that can explain how hypermethylation of specific regions might come about by inhibition of demethylation in cancer cells.