Elucidating the regulatory mechanism for tissue-specific gene expression is key to understanding the differentiation process. The chondromodulin-I gene (ChM-I) is a cartilage-specific gene, the expression of which is regulated by the transcription factor, Sp3. The binding of Sp3 to the core-promoter region is regulated by the methylation status of the Sp3-binding motif as we reported previously. In this study, we have investigated the molecular mechanisms of the down-regulation of ChM-I expression in mesenchymal stem cells (MSCs) and normal mesenchymal tissues other than cartilage. The core-promoter region of cells in bone and peripheral nerve tissues was hypermethylated, whereas the methylation status in cells of other tissues including MSCs did not differ from that in cells of cartilage, suggesting the presence of inhibitory mechanisms other than DNA methylation. We found that a transcriptional repressor, YY1, negatively regulated the expression of ChM-I by recruiting histone deacetylase and thus inducing the deacetylation of associated histones. As for a positive regulator, we found that a transcriptional co-activator, p300, bound to the core-promoter region with Sp3, inducing the acetylation of histone. Inhibition of YY1 in combination with forced expression of p300 and Sp3 restored the expression of ChM-I in cells with a hypomethylated promoter region, but not in cells with hypermethylation. These results suggested that the expression of tissue-specific genes is regulated in two steps; reversible down-regulation by transcriptional repressor complex and tight down-regulation via DNA methylation.