We consider the problem of exploiting a taxonomy of propositionalized attributes in order to learn compact and robust classifiers. We introduce propositionalized attribute taxonomy guided decision tree learner (PAT-DTL), an inductive learning algorithm that exploits a taxonomy of propositionalized attributes as prior knowledge to generate compact decision trees. Since taxonomies are unavailable in most domains, we also introduce propositionalized attribute taxonomy learner (PAT-Learner) that automatically constructs taxonomy from data. PAT-DTL uses top-down and bottom-up search to find a locally optimal cut that corresponds to the literals of decision rules from data and propositionalized attribute taxonomy. PAT-Learner propositionalizes attributes and hierarchically clusters the propositionalized attributes based on the distribution of class labels that co-occur with them to generate a taxonomy. Our experimental results on UCI repository data sets show that the proposed algorithms can generate a decision tree that is generally more compact than and is sometimes comparably accurate to those produced by standard decision tree learners.