Modifications at the N-terminal tails of nucleosomal histones are required for efficient transcription in vivo. We analyzed how H3 histone methylation and demethylation control expression of estrogen-responsive genes and show that a DNA-bound estrogen receptor directs transcription by participating in bending chromatin to contact the RNA polymerase II recruited to the promoter. This process is driven by receptor-targeted demethylation of H3 lysine 9 at both enhancer and promoter sites and is achieved by activation of resident LSD1 demethylase. Localized demethylation produces hydrogen peroxide, which modifies the surrounding DNA and recruits 8-oxoguanine-DNA glycosylase 1 and topoisomeraseIIbeta, triggering chromatin and DNA conformational changes that are essential for estrogen-induced transcription. Our data show a strategy that uses controlled DNA damage and repair to guide productive transcription.