In mammalian cells, DNA methylation is associated with heritable and stable gene repression, mediated in part by methyl-CpG-binding domain (MBD) proteins that recruit corepressors to modify chromatin. MBD1 protein, a member of the MBD family, forms a complex with SETDB1 histone methylase to silence transcription at target promoters by methylation of lysine 9 of histone H3. How MBD1-mediated transcriptional repression is regulated is currently unknown. Here we show that MBD1 is a target for sumoylation by PIAS1 (Protein Inhibitors of Activated STAT 1) and PIAS3 E3 SUMO (small ubiquitin-like modifier)-ligases, at two conserved lysine residues within the C-terminus of MBD1. Although sumoylated MBD1 binds to methylated DNA, it does not incorporate into a complex with SETDB1 and does not efficiently repress transcription of a target gene, p53BP2, in HeLa cells. Our data suggest that transcriptional silencing by MBD1 is regulated by a PIAS-mediated conjugation of SUMO1, which antagonizes the formation of a repressive complex with SETDB1.