MBD1 is a mammalian protein that binds symmetrically methylated CpG sequences and regulates gene expression in association with DNA methylation. This protein possesses a conserved sequence, named methyl-CpG binding domain (MBD), among a family of methyl-CpG binding proteins that mediate the biological consequences of the methylation. In addition, MBD1 has at least five isoforms due to alternative splicing events, resulting in the presence of CXXC1, CXXC2, and CXXC3 in MBD1 isoforms v1 (MBD1v1) and MBD1v2, and CXXC1 and CXXC2 in MBD1v3 and -v4. In the present study, we have investigated the significance of MBD, CXXC, and the C-terminal transcriptional repression domain (TRD) in MBD1. A bacterially expressed MBD binds efficiently to densely methylated rather than to sparsely methylated DNAs. In both methylation-deficient Drosophila melanogaster SL2 cells and mammalian CHO-K1 cells, MBD1v1 represses transcription preferentially from both unmethylated and sparsely methylated promoters, while MBD1v3 inhibits densely methylated but not unmethylated promoter activities. The CXXC3 sequence in MBD1v1 is responsible for the ability to bind unmethylated promoter. Furthermore, we have constructed mutant-type MBD1s in which the functionally important residues Arg22, Arg30, Asp32, Tyr34, Arg44, Ser45, and Tyr52 are changed to alanine to investigate the correlation between the structure and function of the MBD in MBD1. Excepting those for Ser45 and Tyr52, none of the recombinant MBD mutants bound to the densely methylated or unmethylated DNAs, and green fluorescent protein-fused MBD1 mutants did not localize properly in the nucleus. All the MBD1v1 and -v3 mutants lost the activity of methylation-dependent gene repression. Based on these findings we have concluded that MBD1 acts as a transcriptional regulator depending on the density of methyl-CpG pairs through the cooperation of MBD, CXXC, and TRD sequences.