Genome-wide gene expression studies have indicated that the eukaryotic genome contains many gene pairs showing overlapping sense and antisense transcription. Regulation of these coding and/or noncoding gene pairs involves intricate regulatory mechanisms. In the present study, we utilized an enhanced green fluorescent protein (EGFP)-tagged reporter plasmid cis linked to a doxycycline-inducible antisense promoter, generating antisense transcription that fully overlaps EGFP, to study the mechanism and dynamics of gene silencing after induction of noncoding antisense transcription in undifferentiated and differentiating mouse embryonic stem cells (ESCs). We found that EGFP silencing is reversible in ESCs but is locked into a stable state upon ESC differentiation. Reversible silencing in ESCs is chromatin dependent and is associated with accumulation of trimethylated lysine 36 on histone H3 (H3K36me3) at the EGFP promoter region. In differentiating ESCs, antisense transcription-induced accumulation of H3K36me3 was associated with an increase in CpG methylation at the EGFP promoter. Repression of the sense promoter was affected by small-molecule inhibitors which interfere with DNA methylation and histone demethylation pathways. Our results indicate a general mechanism for silencing of fully overlapping sense-antisense gene pairs involving antisense transcription-induced accumulation of H3K36me3 at the sense promoter, resulting in reversible silencing of the sense partner, which is stabilized during ESC differentiation by CpG methylation.