The specific post-translational modifications to histones influence many nuclear processes including gene regulation, DNA repair and replication. Recent studies have identified effector proteins that recognize patterns of histone modification and transduce their function in downstream processes. For example, histone acetyltransferases (HATs) have been shown to participate in many essential cellular processes, particularly those associated with activation of transcription. Yeast SAGA (Spt-Ada-Gcn5 acetyltransferase) and SLIK (SAGA-like) are two highly homologous and conserved multi-subunit HAT complexes, which preferentially acetylate histones H3 and H2B and deubiquitinate histone H2B. Here we identify the chromatin remodelling protein Chd1 (chromo-ATPase/helicase-DNA binding domain 1) as a component of SAGA and SLIK. Our findings indicate that one of the two chromodomains of Chd1 specifically interacts with the methylated lysine 4 mark on histone H3 that is associated with transcriptional activity. Furthermore, the SLIK complex shows enhanced acetylation of a methylated substrate and this activity is dependent upon a functional methyl-binding chromodomain, both in vitro and in vivo. Our study identifies the first chromodomain that recognizes methylated histone H3 (Lys 4) and possibly identifies a larger subfamily of chromodomain proteins with similar recognition properties.