From the human B-lymphoblastoid cell line IM-9-P, we derived the IM-9-P series of clonal sublines that differ from each other in the degree of human PRL (hPRL) production. To elucidate the mechanisms underlying the different levels of hPRL gene activity in these cell lines, we investigated the methylation status of the gene, since the methylation pattern of cytosine-residues in CpG dinucleotides has been implicated with the transcriptional activity of eukaryotic genes. Restriction enzyme analysis of the hPRL gene with methylation-sensitive endonucleases disclosed no correlation between the extent of methylation and gene activity for ThaI, AvaI, and HhaI recognition sequences. Hypermethylation of a MspI site (CCGG) in the second protein-coding exon, however, was found to coincide with hPRL gene activity. Exposure of the cells to the nucleoside 1-beta-D-arabinofuranosylcytosine, which has been reported to increase enzymatic DNA-methylation, led to an elevation of hPRL production that persisted after removal of the drug. However, treatment of PRL-positive cells with the demethylating cytidine analog, 5-azacytidine, caused a distinct and heritable reduction of hPRL secretion and hPRL mRNA abundance, concurrent with hypomethylation of the specific MspI site that is hypomethylated in PRL-negative cell lines of the IM-9-P family. Contrasting the generally favored inverse relationship between methylation and transcriptional activity of a gene we describe a system in which site-specific methylation is positively correlated with gene expression.