DNA methylation is a key regulatory control route in epigenetics, involving gene silencing and chromosome inactivation. It has been recognized that methyl-CpG binding domain (MBD) proteins play an important role in interpreting the genetic information encoded by methylated DNA (mDNA). Although the function of MBD proteins has attracted considerable attention and is well characterized, the mechanism underlying mDNA recognition by MBD proteins is still poorly understood. In this article, we demonstrate that the methyl-CpG dinucleotides are recognized at the MBD-mDNA interface by two MBD arginines through an interplay of hydrogen bonding and cation-π interaction. Through molecular dynamics and quantum-chemistry calculations we investigate the methyl-cytosine recognition process and demonstrate that methylation enhances MBD-mDNA binding by increasing the hydrophobic interfacial area and by strengthening the interaction between mDNA and MBD proteins. Free-energy perturbation calculations also show that methylation yields favorable contribution to the binding free energy for MBD-mDNA complex.