Perinatal nicotine exposure downregulated angiotensin II type 2 receptor (AT2R) in the developing brain and increased brain vulnerability to hypoxic-ischemic injury in male neonatal rats. We tested the hypothesis that site-specific CpG methylation at AT2R gene promoter contributes to the increased vulnerability of brain injury in the neonate. Nicotine was administered to pregnant rats from day 4 of gestation to day 10 after birth. Brain hypoxic-ischemic injury was induced in day 10 male pups. CpG methylation at AT2R promoter was determined in the brain by quantitative methylation-specific PCR. Nicotine exposure significantly increased the methylation of a single CpG-52 locus near the TATA-box at AT2R promoter. Electrophoretic mobility shift assay indicated that the methylation of CpG-52 significantly decreased the binding affinity of TATA-binding protein (TBP). Chromatin immunoprecipitation assay further demonstrated an increase in the binding of a methyl-binding protein and a decrease in TBP binding to AT2R promoter in vivo in neonatal brains of nicotine-treated animals. This resulted in AT2R gene repression in the brain. Intracerebroventricular administration of a demethylating agent 5-aza-2'-deoxycytidine abrogated the enhanced methylation of CpG-52, rescued the TBP binding, and restored AT2R gene expression. Of importance, 5-aza-2'-deoxycytidine reversed the nicotine-increased vulnerability of brain hypoxic-ischemic injury in the neonate. The finding provides mechanistic evidence of increased promoter methylation and resultant AT2R gene repression in the developing brain linking perinatal stress and a pathophysiological consequence of heightened vulnerability of brain hypoxic-ischemic encephalopathy in the neonate.