The histone H3 Lys 27 (H3K27) demethylase JMJD3 has been shown to play important roles in transcriptional regulation and cell differentiation. However, the mechanism underlying JMJD3-mediated transcriptional regulation remains incompletely understood. Here we show that JMJD3 is associated with KIAA1718, whose substrates include dimethylated H3K27 (H3K27me2), and proteins involved in transcriptional elongation. JMJD3 and KIAA1718 directly bind to and regulate the expression of a plethora of common target genes in both a demethylase activity-dependent and -independent manner in the human promyelocytic leukemia cell line HL-60. We found that JMJD3 and KIAA1718 collaborate to demethylate trimethylated H3K27 (H3K27me3) on a subset of their target genes, some of which are bivalently marked by H3K4me3 and H3K27me3 and associated with promoter-proximal, paused RNA polymerase II (Pol II) before activation. Reduction of either JMJD3 or KIAA1718 diminishes Pol II traveling along the gene bodies of the affected genes while having no effect on the promoter-proximal Pol II. Furthermore, JMJD3 and KIAA1718 also play a role in localizing elongation factors SPT6 and SPT16 to the target genes. Our results support the model whereby JMJD3 activates bivalent gene transcription by demethylating H3K27me3 and promoting transcriptional elongation. Taken together, these findings provide new insight into the mechanisms by which JMJD3 regulates gene expression.