Aquaporin-5 (AQP5) is expressed in a cell type-specific manner. Here, we show that the AQP5 gene is regulated by CpG methylation. The AQP5 promoter containing a putative CpG island was highly methylated in NIH-3T3 or freshly isolated alveolar epithelial cells, correlating with the repression of this gene in these cells. In contrast, the AQP5 promoter was hypo-methylated in MLE-12 or cultured alveolar epithelial cells, which express high levels of AQP5. Repression of AQP5 transcription in NIH-3T3 cells could be relieved with 5-azacytidine, and in vitro methylation of the AQP5 promoter resulted in inhibition of transcription of the reporter gene in MLE-12 cells. Chromatin immunoprecipitation assays showed that endogenous Sp1 bound to the hypo-methylated, but not highly methylated, AQP5 promoter region. These results demonstrate that the hypo-methylated state of the AQP5 promoter leading to increased Sp1 binding may play a role in regulation of cell type-specific expression of the AQP5 gene.