Enhancer of Zeste [E(z)] is a Polycomb-group transcriptional repressor and one of the founding members of the family of SET domain-containing proteins. Several SET-domain proteins possess intrinsic histone methyltransferase (HMT) activity. However, recombinant E(z) protein was found to be inactive in a HMT assay. Here we report the isolation of a multiprotein E(z) complex that contains extra sex combs, suppressor of zeste-12 [Su(z)12], and the histone binding proteins RbAp46/RbAp48. This complex, which we termed Polycomb repressive complex (PRC) 2, possesses HMT activity with specificity for Lys 9 (K9) and Lys 27 (K27) of histone H3. The HMT activity of PRC2 is dependent on an intact SET domain in the E(z) protein. We hypothesize that transcriptional repression by the E(z) protein involves methylation-dependent recruitment of PRC1. The presence of Su(z)12, a strong suppressor of position effect variegation, in PRC2 suggests that PRC2 may play a widespread role in heterochromatin-mediated silencing.