Histone H3 methylation at Lys27 (H3K27 methylation) is a hallmark of silent chromatin, while H3K4 methylation is associated with active chromatin regions. Here we report that a Drosophila JmjC family member, dUTX, specifically demethylates di- and trimethylated but not monomethylated H3K27. dUTX localization on chromatin correlates with the elongating form of RNA polymerase II (Pol II), and dUTX can associate with Pol II. Furthermore, heat shock induction results in the recruitment of dUTX to the hsp70 gene, like that of several other Pol II elongation factors. Our data indicate that dUTX is intimately associated with actively transcribed genes and may provide a paradigm for how H3K27 demethylation is required for the activation of preinitiated Pol II on transcriptionally poised genes.