Previously it has been found that binding of the Sp1 transcription factor is not significantly affected by methylation of the CpG dinucleotide within its binding site, 5′-GGGCGG (lower strand, 5′-CCGCCC). Since it has been established that mammalian cells also have the capacity to methylate cytosines (C) at CpNpG sites we examined the effect of methylation of the outer C of the CpCpG on Sp1 binding. We find that methylation of the outer C is inhibitory and in particular methylation of both cytosines ^mCp^mCpG inhibits binding by 95%. Furthermore, we have identified endogenous ^mCp^mCpG methylation of an Sp1 site in the CpG island promoter of the retinoblastoma (Rb) gene by genomic sequencing. This occurs in a proportion of retinoblastoma tumors which are extensively CpG methylated in the Rb promoter. The results raise the possibility that ^mCp^mCpG methylation could have a biological function in preventing Sp1 binding, thereby contributing to the subsequent abnormal methylation of CpG islands often observed in tumor cells.