BLU is a candidate tumor suppressor gene, which is epigenetically inactivated in many human malignancies. However, the expression and biological functions of BLU in gastric cancer has not yet been reported. In the present study, we identified a functional BLU promoter which was regulated by the transcription activator Sp1. Bisulfite sequencing and qRT-PCR assays indicated that the silence of BLU expression in gastric cancer was significantly associated with DNA hypermethylation of BLU promoter including -39 CpG site located in the Sp1 transcription element. The expression of BLU was notably restored in AGS and SGC7901 cells following the demethylation-treatment with 5'-Aza-2'-deoxycytidine. Moreover, the results from ChIP, EMSA and luciferase reporter gene showed that -39 CpG methylation could prevent Sp1 from binding to the promoter of BLU and decreased transcription activity of the BLU gene by ~70%. In addition, knockdown of BLU significantly promoted cellular proliferation and colony formation in gastric cancer cells. In conclusion, we identified a novel functional BLU promoter and proved that BLU promoter activity was regulated by Sp1. Furthermore, we found that hypermethylated -39 CpG in BLU proximal promoter directly reduced its binding with Sp1, which may be one of the mechanisms accounting for the inactivation of BLU in gastric cancer.