The detailed mechanisms of inhibition of transcription by DNA methylation are still unknown, but it has become obvious that the formation of chromatin plays an important role in this process. Using an approach enabling us to methylate, in vitro, chosen regions in a plasmid, we now show that specific methylation of nonpromoter sequences results in transcriptional inhibition of a reporter gene construct and that this inhibition is independent of the position of the methylated region within the plasmid. In plasmid minichromosomes containing a short region of methylated DNA, both methylated and unmethylated sequences are protected from limited MspI digestion. Our results show that inactive chromatin is present at unmethylated regions in partially methylated minichromosomes and can thereby inhibit gene expression. Spreading of the inactive chromatin is not inhibited by the presence of active promoters, nor is it a consequence of transcriptional inactivity.