Background: Covalent modifications of histone N-terminal tails play fundamental roles in regulating chromatin structure and function. Extensive studies have established that acetylation of specific lysine residues in the histone tails plays an important role in transcriptional regulation. Besides acetylation, recent studies have revealed that histone methylation also has significant effects on heterochromatin formation and transcriptional regulation. Histone methylation occurs on specific arginine and lysine residues of histones H3 and H4. Thus far, only 2 residues on histone H4 are known to be methylated. While H4-arginine 3 (H4-R3) methylation is mediated by PRMT1, the enzyme(s) responsible for H4-lysine 20 (H4-K20) methylation is not known. Results: To gain insight into the function of H4-K20 methylation, we set out to identify the enzyme responsible for this modification. We purified and cloned a novel human SET domain-containing protein, named SET8, which specifically methylates H4 at K20. SET8 is a single subunit enzyme and prefers nucleosomal substrates. We find that H4-K20 methylation occurs in a wide range of higher eukaryotic organisms and that SET8 homologs exist in C. elegans and Drosophila. We demonstrate that the Drosophila SET8 homolog has the same substrate specificity as its human counterpart. Importantly, disruption of SET8 in Drosophila reduces levels of H4-K20 methylation in vivo and results in lethality. Although H4-K20 methylation does not correlate with gene activity, it appears to be regulated during the cell cycle. Conclusions: We identified and characterized an evolutionarily conserved nucleosomal H4-K20-specific methyltransferase and demonstrated its essential role in Drosophila development.