Acetylation of core histone tails plays a fundamental role in transcription regulation. In addition to acetylation, other posttranslational modifications, such as phosphorylation and methylation, occur in core histone tails. Here, we report the purification, molecular identification, and functional characterization of a histone H4-specific methyltransferase PRMT1, a protein arginine methyltransferase. PRMT1 specifically methylates arginine 3 (Arg 3) of H4 in vitro and in vivo. Methylation of Arg 3 by PRMT1 facilitates subsequent acetylation of H4 tails by p300. However, acetylation of H4 inhibits its methylation by PRMT1. Most important, a mutation in the S-adenosyl-L-methionine-binding site of PRMT1 substantially crippled its nuclear receptor coactivator activity. Our finding reveals Arg 3 of H4 as a novel methylation site by PRMT1 and indicates that Arg 3 methylation plays an important role in transcriptional regulation.