DNA methylation, a key mechanism of repressing gene expression, is of particular relevance in controlling development and cell differentiation. We analyzed the extent and regulation of DNA methylation of the alpha-smooth muscle actin (alpha-SMA) gene to elucidate its potential role in myofibroblast differentiation. These experiments revealed the presence of three CpG islands that were methylated at different levels in fibroblasts, myofibroblasts, and alveolar epithelial type II cells. Coordinately, these cells expressed low, high, or no alpha-SMA, respectively. In addition, inhibition of DNA methyltransferase activity or knock down of DNA methyltransferase using specific small interfering RNA caused significant induction of alpha-SMA in fibroblasts. In contrast, induced overexpression of DNA methyltransferase suppressed alpha-SMA gene expression. Transforming growth factor beta induced myofibroblast differentiation was enhanced or suppressed by knockdown or overexpression of DNA methyltransferase, respectively. Finally, in vitro DNA methylation of the alpha-SMA promoter suppressed its activity. These findings suggest that DNA methylation mediated by DNA methyltransferase is an important mechanism regulating the alpha-SMA gene expression during myofibroblast differentiation.