The Polycomb system epigenetically represses selected developmental genes to enforce gene expression programs of differentiated cells. The system requires the coordinated action of dozens of structurally unrelated proteins assembled in two evolutionarily conserved polycomb repressive complexes, PRC1 and PRC2. Genes repressed by the Polycomb system are enriched in histone H3 trimethylated at lysine 27 (H3K27me3), an epigenetic mark that propagates the repressed state after DNA replication. Despite the impressive progress in dissecting molecular functions of the Polycomb group proteins, the fundamental questions of how the Polycomb system represses transcription or how the H3K27me3 mark is translated to benefit the repression are still open. Multiple observations indicate that the binding of PRC1, PRC2, and elevated H3K27me3 correlate with changes in the chromatin structure of target genes, which may be integral for the associated epigenetic repression. In this Review, we summarize our current understanding of these observations. We discuss the chromatin folding inside the loci repressed by the Polycomb system, consider molecular processes causing it and reflect upon its possible impact on transcription and epigenetic memory of the repressed state.