Methylation of nonhistone proteins is emerging as a regulatory mechanism to control protein function. Set7 (Setd7) is a SET-domain-containing lysine methyltransferase that methylates and alters function of a variety of proteins in vitro, but the in vivo relevance has not been established. We found that Set7 is a modifier of the Hippo pathway. Mice that lack Set7 have a larger progenitor compartment in the intestine, coinciding with increased expression of Yes-associated protein (Yap) target genes. Mechanistically, monomethylation of lysine 494 of Yap is critical for cytoplasmic retention. These results identify a methylation-dependent checkpoint in the Hippo pathway.