The trithorax and the polycomb group proteins are chromatin modifiers, which play a key role in the epigenetic regulation of development, differentiation and maintenance of cell fates. The polycomb repressive complex 2 (PRC2) mediates transcriptional repression by catalysing the di- and tri-methylation of Lys27 on histone H3 (H3K27me2/me3). Owing to the essential role of the PRC2 complex in repressing a large number of genes involved in somatic processes, the H3K27me3 mark is associated with the unique epigenetic state of stem cells. The rapid decrease of the H3K27me3 mark during specific stages of embryogenesis and stem-cell differentiation indicates that histone demethylases specific for H3K27me3 may exist. Here we show that the human JmjC-domain-containing proteins UTX and JMJD3 demethylate tri-methylated Lys27 on histone H3. Furthermore, we demonstrate that ectopic expression of JMJD3 leads to a strong decrease of H3K27me3 levels and causes delocalization of polycomb proteins in vivo. Consistent with the strong decrease in H3K27me3 levels associated with HOX genes during differentiation, we show that UTX directly binds to the HOXB1 locus and is required for its activation. Finally mutation of F18E9.5, a Caenorhabditis elegans JMJD3 orthologue, or inhibition of its expression, results in abnormal gonad development. Taken together, these results suggest that H3K27me3 demethylation regulated by UTX/JMJD3 proteins is essential for proper development. Moreover, the recent demonstration that UTX associates with the H3K4me3 histone methyltransferase MLL2 (ref. 8) supports a model in which the coordinated removal of repressive marks, polycomb group displacement, and deposition of activating marks are important for the stringent regulation of transcription during cellular differentiation.