The trithorax (trxG) and Polycomb (PcG) group proteins recognize and propagate inheritable patterns of gene expression through a poorly understood epigenetic mechanism. A distinguishing feature of these proteins is the presence of a 130-amino-acid methyltransferase domain (SET), which catalyzes the methylation of histones. It is still not clear how SET proteins distinguish gene expression states, how they are targeted, or what regulates their substrate specificity. Many SET domain-containing proteins show robust activity on core histones but relatively weak activity on intact nucleosomes, their physiological substrate. Here, we examined the binding of two SET domain-containing proteins, ALL1 and SET7, to chromatin substrates. The SET domains from these proteins bind and methylate intact nucleosomes poorly but can recognize disrupted nucleosomal structures associated with transcribed chromatin. Interestingly, the remodeling of dinucleosomes by the ISWI class of ATP-dependent chromatin remodeling enzymes stimulated the binding of SET domains to chromatin and the methylation of H3 within the nucleosome. Unexpectedly, dinucleosomes remodeled by SWI/SNF were poor substrates. Thus, SET domains can distinguish nucleosomes altered by these two classes of remodeling enzymes. Our study reveals novel insights into the mechanism of how SET domains recognize different chromatin states and specify histone methylation at active loci.