We have studied the effect of DNA methylation on human gamma-globin gene expression, using a novel in vitro DNA methylation technique. With this method we have methylated specific segments of the gamma-globin gene and its 5'-flanking region, which were cloned for this purpose in the bacteriophage vector M13mp8. The vitro methylated DNA was introduced into mouse L-cells by cotransfer using the herpes simplex virus thymidine kinase gene as a selective marker. Transformed cell lines were isolated to examine the inheritance of the segmental methylation pattern and its effect on the expression of the gamma-globin gene. Cells transformed with DNA methylated throughout the M13 vector and gamma-globin DNA sequences do not express the gamma-globin gene. Methyl-C residues in either the M13 DNA sequences or the gamma-globin structural gene have, however, no inhibitory effect on globin transcription. In contrast, methylation in the 5' region of the gamma-globin gene (from nucleotides -760 to +100) prevents transcription. These data indicate that DNA methylation in the 5' region of a gene might play a direct role in the regulation of gene expression.