Epigenetic mechanisms govern developmental cell fate decisions, but how DNA methylation coordinates with chromatin structure and three-dimensional DNA folding to enact cell-type specific gene expression programmes remains poorly understood. Here, we use mouse embryonic stem and epiblast-like cells deficient for 5-methyl cytosine or its oxidative derivatives (5-hydroxy-, 5-formyl- and 5-carboxy-cytosine) to dissect the gene regulatory mechanisms that control cell lineage specification at the exit of pluripotency. Genetic ablation of either DNA methyltransferase ( Dnmt ) or Ten-eleven-translocation ( Tet ) activity yielded largely distinct sets of dysregulated genes, revealing divergent transcriptional defects upon perturbation of individual branches of the DNA cytosine methylation cycle. Unexpectedly, we found that disrupting DNA methylation or oxidation interferes with key enhancer features, including chromatin accessibility, enhancer-characteristic histone modifications, and long-range chromatin interactions with putative target genes. In addition to affecting transcription of select genes in pluripotent stem cells, we observe impaired enhancer priming, including a loss of three-dimensional interactions, at regulatory elements associated with key lineage-specifying genes that are required later in development, as we demonstrate for the key hematopoietic genes Klf1 and Lyl1 . Consistently, we observe impaired transcriptional activation of blood genes during embryoid body differentiation of knockout cells. Our findings identify a novel role for the dynamic turnover of DNA methylation at the exit of pluripotency to establish and maintain chromatin states that epigenetically prime enhancers for later activation during developmental cell diversification.

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