This work examines the role the lysine methyltransferase KMT1E (Setdb1) in thymocyte development. We have developed and described a T cell-specific conditional knockout of Setdb1. A partial block was seen at the double-positive to single-positive transition, causing reduced numbers of single-positive T cells in the thymus and periphery. Knockout thymocytes had reduced numbers of CD69+ and T-cell receptor TCRβ+ cells and increased numbers of apoptotic cells in the double-positive compartment, suggesting an alteration in the selection process. Transcriptional profiling of thymocytes revealed that Setdb1 deletion derepresses expression of FcγRIIb, the inhibitory Fc receptor. We demonstrate that a KMT1E-containing complex directly interacts with the FcγRIIb promoter and that histone H3 at lysine 9 tri-methylation at this promoter is dependent on Setdb1 expression. Derepression of FcγRIIb causes exacerbated signaling through the TCR complex, with specifically increased phosphorylation of ZAP70, affecting selection. This work identifies KMT1E as a novel repressor of FcγRIIb and identifies an underappreciated role of FcγRIIb in fine tuning thymocyte development.