Cellular differentiation is a vital process that results in cell specialization and functionalization, synchronized with the development and growth in multicellular organisms. Any fault in this process can bring about the emergence of various diseases. Gene expression controls cellular differentiation, but various epigenetic mechanisms play a pivotal role as well. For instance, DNA methylation and combined histone modifications, such as histone acetylation/deacetylation, are crucial in cellular differentiation. Methyl-CpG-Binding Domain 2 (MBD2), a highly conserved member of the MBD protein family, is considered a reader of DNA methylation and drives the crosstalk between DNA methylation and histone deacetylation. It can functionally recruit the nucleosome remodeling and deacetylase (NuRD) complex to the CpG-methylated promoters of the genes, which will be silenced during the cell fate determination. This review focuses on the cell-specific functions of MBD2 isoforms (MBD2a, MBD2b, and MBD2c(t)) in cellular differentiation, reprogramming, and the immune system. Furthermore, the relevance between MBD2 and certain cancers was discussed for the first time in this paper. Thus, we provide a comprehensive review about the significance of MBD2 in various cellular mechanisms.