We previously suggested that ASXL1 (additional sex comb-like 1) functions as either a coactivator or corepressor for the retinoid receptors retinoic acid receptor (RAR) and retinoid X receptor in a cell type-specific manner. Here, we provide clues toward the mechanism underlying ASXL1-mediated repression. Transfection assays in HEK293 or H1299 cells indicated that ASXL1 alone possessing autonomous transcriptional repression activity significantly represses RAR- or retinoid X receptor-dependent transcriptional activation, and the N-terminal portion of ASXL1 is responsible for the repression. Amino acid sequence analysis identified a consensus HP1 (heterochromatin protein 1)-binding site (HP1 box, PXVXL) in that region. Systematic in vitro and in vivo assays revealed that the HP1 box in ASXL1 is critical for the interaction with the chromoshadow domain of HP1. Transcription assays with HP1 box deletion or HP1alpha knockdown indicated that HP1alpha is required for ASXL1-mediated repression. Furthermore, we found a direct interaction of ASXL1 with histone H3 demethylase LSD1 through the N-terminal region nearby the HP1-binding site. ASXL1 binding to LSD1 was greatly increased by HP1alpha, resulting in the formation of a ternary complex. LSD1 cooperates with ASXL1 in transcriptional repression, presumably by removing H3K4 methylation, an active histone mark, but not H3K9 methylation, a repressive histone mark recognized by HP1. This possibility was supported by chromatin immunoprecipitation assays followed by ASXL1 overexpression or knockdown. Overall, this study provides the first evidence that ASXL1 cooperates with HP1 to modulate LSD1 activity, leading to a change in histone H3 methylation and thereby RAR repression.