MBD1 is a vertebrate methyl-CpG binding domain protein (MBD) that can bring about repression of methylated promoter DNA sequences. Like other MBD proteins, MBD1 localizes to nuclear foci that in mice are rich in methyl-CpG. In methyl-CpG-deficient mouse cells, however, Mbd1 remains localized to heterochromatic foci whereas other MBD proteins become dispersed in the nucleus. We find that Mbd1a, a major mouse isoform, contains a CXXC domain (CXXC-3) that binds specifically to nonmethylated CpG, suggesting an explanation for methylation-independent localization. Transfection studies demonstrate that the CXXC-3 domain indeed targets nonmethylated CpG sites in vivo. Repression of nonmethylated reporter genes depends on the CXXC-3 domain, whereas repression of methylated reporters requires the MBD. Our findings indicate that MBD1 can interpret the CpG dinucleotide as a repressive signal in vivo regardless of its methylation status.