Methylation at the DNA sequence 5'-CpG is required for mouse development. MeCP2 and MBD1 (formerly PCM1) are two known proteins that bind specifically to methylated DNA via a related amino acid motif and that can repress transcription. We describe here three novel human and mouse proteins (MBD2, MBD3, and MBD4) that contain the methyl-CpG binding domain. MBD2 and MBD4 bind specifically to methylated DNA in vitro. Expression of MBD2 and MBD4 tagged with green fluorescent protein in mouse cells shows that both proteins colocalize with foci of heavily methylated satellite DNA. Localization is disrupted in cells that have greatly reduced levels of CpG methylation. MBD3 does not bind methylated DNA in vivo or in vitro. MBD1, MBD2, MBD3, and MBD4 are expressed in somatic tissues, but MBD1 and MBD2 expression is reduced or absent in embryonic stem cells which are known to be deficient in MeCP1 activity. The data demonstrate that MBD2 and MBD4 bind specifically to methyl-CpG in vitro and in vivo and are therefore likely to be mediators of the biological consequences of the methylation signal.