Methylation of lysine-79 (K79) within the globular domain of histone H3 by Dot1 methylase is important for transcriptional silencing and for association of the Sir silencing proteins in yeast. Here, we show that the level of H3-K79 methylation is low at all Sir-dependent silenced loci but not at other transcriptionally repressed regions. Hypomethylation of H3-K79 at the telomeric and silent mating-type loci, but not the ribosomal DNA, requires the Sir proteins. Overexpression of Sir3 concomitantly extends the domain of Sir protein association and H3-K79 hypomethylation at telomeres. In mammalian cells, H3-K79 methylation is found at loci that are active for V(D)J recombination, but not at recombinationally inactive loci that are heterochromatic. These results suggest that H3-K79 methylation is an evolutionarily conserved marker of active chromatin regions, and that silencing proteins block the ability of Dot1 to methylate histone H3. Further, they suggest that Sir proteins preferentially bind chromatin with hypomethylated H3-K79 and then block H3-K79 methylation. This positive feedback loop, and the reverse loop in which H3-K79 methylation weakens Sir protein association and leads to further methylation, suggests a model for position-effect variegation.