Microsatellite instability (MSI) is caused by the dysfunction of mismatch repair genes, such as hMLH1, hMSH2. Loss of hMLH1 expression and methylation of CpG sites in hMLH1 promoter are frequently present in sporadic colorectal cancer with MSI. In this study, by transient transfection assay with constructs containing different lengths of hMLH1 promoter and a luciferase reporter gene, we located a proximal region of hMLH1 promoter, which plays a main role in regulating the gene. The fact that luciferase activities were high in all host cell lines regardless of their hMLH1 expression levels indicates that the transcription machinery is intact even in non-expressing cells. When hMLH1 promoter was in vitro methylated before transfection, the luciferase activities in the transfectants were significantly reduced. This observation indicates that methylation causes the inhibition of hMLH1 promoter activity. By electrophoretic mobility shift assay (EMSA), we identified a CCAAT box in this region, which specifically bound transcription factor CBF. Mutations in CCAAT box not only inhibited its binding to CBF factor, but also reduced its ability to drive the expression of luciferase gene. The role of CBF in activating transcription was further substantiated by inhibition of promoter activity with a plasmid expressing a dominant negative CBF-B mutant. Methylation at a CpG site two base pairs upstream of the CCAAT box inhibited the binding of CBF to CCAAT box. We conclude that methylation of an adjacent CpG site inhibits binding of the CBF transcription to the corresponding CCAAT box, and is one of the causes of hMLH1 gene silencing in colon cancer cells.