Transcription factor Sp1 has been implicated in the expression of many genes. Moreover, it has been suggested that Sp1 is linked to the maintenance of methylation-free CpG islands, the cell cycle, and the formation of active chromatin structures. We have inactivated the mouse Sp1 gene. Sp1-/- embryos are retarded in development, show a broad range of abnormalities, and die around day 11 of gestation. In Sp1-/- embryos, the expression of many putative target genes, including cell cycle-regulated genes, is not affected, CpG islands remain methylation free, and active chromatin is formed at the globin loci. However, the expression of the methyl-CpG-binding protein MeCP2 is greatly reduced in Sp1-/- embryos. MeCP2 is thought to be required for the maintenance of differentiated cells. We suggest that Sp1 is an important regulator of this process.