Methylation of plant promoters is often associated with transcriptional gene silencing, while methylation of the transcribed region is associated with post-transcriptional gene silencing. Promoter complexes that include the first untranslated exon and intron, such as maize ubiquitin1 and rice actin1, have been widely used in monocot transformation because they support higher levels of transient transgene expression than the core promoter does. However, persistent problems with transgene silencing driven by these promoter complexes brought up a troubling question: were higher initial levels of transgene expression at the expense of long-term expression stability? Here we report that methylation of an untranslated exon and intron in the promoter complex is correlated with transcriptional transgene silencing in barley. Two sibling sublines, designated T(3)30 and T(3)31, were identified in a homozygous T3 population from a single transgenic parental line. In the T6 generation, all progeny of one subline, T(3)30, expressed ubiquitin-driven bar and uidA, but both transgenes were transcriptionally silenced in the other subline, T(3)31. Although the structure of the transgene locus is complex, no differences in the physical structure or location of the locus were detected between the two sublines. Transcriptional transgene silencing in T(3)31 correlated with two molecular events: methylation of the first untranslated exon and 5' end of the intron of the promoter complex, and condensation of the chromatin in regions containing transgenes. Passage of the non-silenced subline through in vitro culture recreated the silenced phenotype of T(3)31 and the molecular events leading to its silencing.