Epigenetic regulation of gene transcription relies on molecular marks like DNA methylation or histone modifications. Here we review recent advances in our understanding of epigenetic regulation in the fruit fly Drosophila melanogaster. In the past, DNA methylation research has primarily utilized mammalian model systems. However, several recent landmark discoveries have been made in other organisms. For example, the interaction between DNA methylation and histone methylation was first described in the filamentous fungus Neurospora crassa. Another example is provided by the interaction between epigenetic modifications and the RNA interference (RNAi) machinery that was first reported in the fission yeast Schizosaccharomyces pombe. Another organism with great experimental power is the fruit fly Drosophila. Epigenetic regulation by chromatin has been extensively analyzed in the fly and several of the key components have been discovered in this organism. In this chapter, we will focus on three aspects that represent the complexity of epigenetic gene regulation. (1) We will discuss the available data about the DNA methylation system, (2) we will illuminate the interaction between DNA methylation and chromatin regulation, and (3) we will provide an overview over the Polycomb system of epigenetic chromatin modifiers that has proved to be an important paradigm for a chromatin system regulating epigenetic programming.