Set1p methylates lysine 4 (K4) of histone H3 and regulates the expression of many genes in yeast. Here we use a biochemical approach to identify a protein, Isw1p, which recognizes chromatin preferentially when it is di- and trimethylated at K4 H3. We show that on certain actively transcribed genes, the Isw1p chromatin remodeling ATPase requires K4 H3 methylation to associate with chromatin in vivo. Analysis of one such gene, MET16, shows that the enzymatic activities of Set1p and Isw1p are functionally connected: Set1p methylation and Isw1p ATPase generate specific chromatin changes at the 5' end of the gene, are necessary for the correct distribution of RNA polymerase II over the coding region, and are required for the recruitment of the cleavage and polyadenylation factor Rna15p. These results indicate that K4 H3 methylation and Isw1p ATPase activity are intimately linked in regulating transcription of certain genes in yeast.