Dimethylation of histone H3 lysine 9 (H3K9me2) is an important epigenetic mark associated with transcription repression. Here, we identified PHF8, a JmjC-domain-containing protein, as a histone demethylase specific for this repressing mark. Recombinant full-length wild type protein could remove methylation from H3K9me2, but mutation of a conserved histidine to alanine H247A abolished the demethylase activity. Overexpressed exogenous PHF8 was colocalized with B23 staining. Endogenous PHF8 was also colocalized with B23 and fibrillarin, two well-established nucleolus proteins, suggesting that PHF8 is localized in the nucleolus and may regulate rRNA transcription. Indeed, PHF8 bound to the promoter region of the rDNA gene. Knockdown of PHF8 reduced the expression of rRNA, and overexpression of the gene resulted in upregulation of rRNA transcript. Concomitantly, H3K9me2 level was elevated in the promoter region of the rDNA gene in PHF8 knockdown cells and reduced significantly when the wild type but not the catalytically inactive H247A mutant PHF8 was overexpressed. Thus, our study identified a histone demethylase for H3K9me2 that regulates rRNA transcription.