The identification and characterization of molecular mechanisms utilized by cells to mediate transcriptional repression at methylated loci are fundamental to understanding the biological consequences of DNA methylation. Here we demonstrate that Kaiso, a methyl CpG binding protein belonging to the BTB/POZ family of transcription factors, is a component of the human N-CoR complex. In vitro, the Kaiso/N-CoR complex binds specific CpG-rich sequences in a methylation-dependent manner. In vivo, Kaiso targets the N-CoR complex to the MTA2 gene promoter in a methylation-dependent manner. Importantly, we demonstrate that Kaiso is required for transcriptional repression of the methylated MTA2 locus. Furthermore, this repression also requires a functional N-CoR deacetylase complex, which brings about histone hypoacetylation and methylation of H3 lysine 9 to the MTA2 locus. Thus, our data demonstrate a critical role for a methyl CpG binding protein in mediating DNA methylation-dependent repression and reveal the mechanism by which it represses transcription.