In vertebrates, the biological consequences of DNA methylation are often mediated by protein factors containing conserved methyl-CpG binding domains (MBDs). Mutations in the MBD protein MeCP2 cause the neurodevelopmental disease Rett syndrome. We report here the solution structure of the MBD of the human methylation-dependent transcriptional regulator MBD1 bound to methylated DNA. DNA binding causes a loop in MBD1 to fold into a major and novel DNA binding interface. Recognition of the methyl groups and CG sequence at the methylation site is due to five highly conserved residues that form a hydrophobic patch. The structure indicates how MBD may access nucleosomal DNA without encountering steric interference from core histones, and provides a basis to interpret mutations linked to Rett syndrome in MeCP2.