Although many metazoan enzymes that add or remove specific modifications on histone proteins are essential transcriptional regulators, the functional significance of posttranslational modifications on histone proteins is not well understood. Here, we show in Drosophila that a point mutation in lysine 27 of histone H3 (H3-K27) fails to repress transcription of genes that are normally repressed by Polycomb repressive complex 2 (PRC2), the methyltransferase that modifies H3-K27. Moreover, differentiated H3-K27 mutant cells show homeotic transformations like those seen in PRC2 mutant cells. Taken together, these analyses demonstrate that H3-K27 is the crucial physiological substrate that PRC2 modifies for Polycomb repression.