DNA methylation is common for all vertebrates and is one of the major epigenetic marks associated with a transcriptionally inactive chromatin state. Methyl-DNA-binding proteins bind methylated DNA and silence gene transcription by recruiting repression complexes. Kaiso is one of the methyl-DNA-binding proteins. Kaiso has two functional domains: the N-terminal BTB/POZ domain is involved in protein--protein interactions, and the C-terminal zinc fingers of the C2H2 type bind to methylated DNA to recruit repression complexes via the interaction of the BTB/POZ domain with the NCoR corepressor. In certain cell lines, Kaiso interacts with the p120 catenin, a cytoplasmic protein that is sometimes found in the nucleus. The parameters of Kaiso--p120 catenin interaction were determined, and its functional consequences were studied in the context of the transcriptional control of methylated genes. Zinc fingers two and three of Kaiso proved to be necessary and sufficient for the interaction with p120 catenin. The interaction involves two molecular events, which inactivate Kaiso as a transcription factor. First, p120 catenin masks the nuclear localization signal of Kaiso, and Kaiso in complex with p120 migrates from the nucleus into the cytoplasm. Second, p120 binding prevents Kaiso from interacting with methylated DNA. Thus, the C-terminal domain of Kaiso was found to play a dual role, binding to DNA and interacting with cytoplasmic p120 catenin. Detailed study of the Kaiso--p120 interaction will identify new mechanisms of nucleocytoplasmic signaling pathways in mammalian cells.