Alternative promoters within the same gene are a general phenomenon in gene expression. Mechanisms of their selective regulation vary from one gene to another and are still poorly understood. Here we show that in quiescent cells the mechanism of transcriptional repression of the major promoter of the gene encoding dihydrofolate reductase depends on a non-coding transcript initiated from the upstream minor promoter and involves both the direct interaction of the RNA and promoter-specific interference. The specificity and efficiency of repression is ensured by the formation of a stable complex between non-coding RNA and the major promoter, direct interaction of the non-coding RNA with the general transcription factor IIB and dissociation of the preinitiation complex from the major promoter. By using in vivo and in vitro assays such as inducible and reconstituted transcription, RNA bandshifts, RNA interference, chromatin immunoprecipitation and RNA immunoprecipitation, we show that the regulatory transcript produced from the minor promoter has a critical function in an epigenetic mechanism of promoter-specific transcriptional repression.