H3K27me3 is deposited at promoters by the preferential association of Polycomb repressive complex 2 (PRC2) with CpG-rich DNA elements regulating development by repressing gene transcription. H3K27 is also present in mono- and dimethylated states; however, the functional roles of H3K27me1 and H3K27me2 deposition remain poorly characterized. Here, we show that PRC2 activity is not only associated with H3K27me3 but also regulates all forms of H3K27 methylation in a spatially defined manner, contributing to different genomic functions in mouse embryonic stem cells. H3K27me1 accumulates within transcribed genes, promotes transcription, and is regulated by Setd2-dependent H3K36me3 deposition. Contrarily, H3K27me2 is present on approximately 70% of total histone H3 and is distributed in large chromatin domains, exerting protective functions by preventing firing of non-cell-type-specific enhancers. Considering that only 5%-10% of deregulated genes in PRC2-deficient cells are direct H3K27me3 targets, our data support an active role for all H3K27 methylated forms in regulating transcription and determining cell identity.