Epigenetic regulation of transcription plays an important role in cell-specific gene expression by altering chromatin structure and access of transcriptional regulators to DNA binding sites. Surfactant protein B (Sftpb) is a developmentally regulated lung epithelial gene critical for lung function. Thyroid transcription factor 1 (Nkx2-1) regulates Sftpb gene expression in various species. We show that Nkx2-1 binds to the mouse Sftpb (mSftpb) promoter in the lung. In a mouse lung epithelial cell line (MLE-15), Nkx2-1 knockdown reduces Sftpb expression, and mutation of Nkx2-1 cis-elements significantly reduces mSftpb promoter activity. Whether chromatin structure modulates Nkx2-1 regulation of Sftpb transcription is unknown. We found that DNA methylation of the mSftpb promoter inversely correlates with known patterns of Sftpb expression in vivo. The mSftpb promoter activity can be manipulated by altering its cytosine methylation status in vitro. Nkx2-1 activation of the mSftpb promoter is impaired by DNA methylation. The unmethylated Sftpb promoter shows an active chromatin structure enriched in the histone modification H3K4me3 (histone 3-lysine 4 trimethylated). The ATP-dependent chromatin remodeling protein Brg1 is recruited to the Sftpb promoter in Sftpb-expressing, but not in non-expressing tissues and cell lines. Brg1 knockdown in MLE-15 cells greatly decreases H3K4me3 levels at the Sftpb promoter region and expression of the Sftpb gene. Brg1 can be co-immunoprecipitated with Nkx2-1 protein. Last, Nkx2-1 and Brg1 with intact ATPase activity are required for mSftpb promoter activation in vitro. Our findings suggest that DNA methylation and chromatin modifications cooperate with Nkx2-1 to regulate Sftpb gene cell specific expression.